Tiong Nam remains a ‘buy’ on long-term prospects, e-commerce potential

PETALING JAYA: HLIB Research has maintained its “buy” call on Tiong Nam Logistics Holdings Bhd (TNLogis) with an unchanged target price of RM2.07, citing it is more reassured on the group’s long-term prospects and capability to ride on the e-commerce market growth.
In a note yesterday, HLIB Research analyst Lim Sin Kiat said aside from the upcoming real estate investment trust (REIT) listing of the group’s warehousing assets, the management also has several business expansion plans on the cards to create more value for its shareholders.
Lim said the group is embarking on investment in efficiency-enhancing technologies in its logistics business, namely the automated storage retrieval system (ASRS), to improve the cargo-handling capability of its warehouses.
“While investment in ASRS system would cost circa three times more than general warehousing systems, it would enable TNLogis to handle 2-2.5 times more goods utilising the same warehousing space,” he said.
Lim noted that significant labour costs could be saved in the process.
In addition, he said the group also plans to expand its logistics capacity through increasing warehousing spaces in several busy locations in the country.
He said, notable expansion by the group is a multi-storey warehouse to be built in Shah Alam with an expected capacity of one million sq ft, which is targeted for completion in 2019.
Lim said, the group’s total capital expenditure of RM158 million spanning over three years, is not expected to exert huge strain on the group’s balance sheet as it will be jointly funded with other associated companies.
“The group is also taking delivery of a 17 axle lines trailer to ready itself for the bidding of project cargo contracts related to Rapid (Refinery and Petrochemical Integrated Development).”
“Revenue contribution for this sub-segment is expected to increase to circa RM30 million per annum,” he added.
On the other hand, Lim said the group also recognises the trend of e-commerce in the logistics and warehousing industry.
At this juncture, he said, the TNLogis’e-commerce contribution is still minimal to the group, but it is in the midst of tendering for contracts with several e-commerce online platform marketplaces like Lazada and etc.
“With its up-to-date warehousing facilities and experience in diverse cargo handling services, we believe that the group is more than capable to ride on the explosive growth of e-commerce market,” Lim added.