KUALA LUMPUR: Affin Hwang Capital Research is maintaining its Buy call for Tiong Nam Logistics with a target price of RM1.90.
It said on Wednesday it continues to like Tiong Nam for its solid track record as well as strong expansion in warehouse capacity to capture booming demand for storage space.
“Its expansion into cross-border services and parcel-delivery should lead to strong competencies across the logistics supply chain. We maintain our TP of RM1.90. Risks: moderating global growth and weak property sales,” it said.
Affin Hwang Research visited Tiong Nam last week to discuss about the group’s expansion plan in Southeast Asia, technological adoption to increase efficiency and its growing online segment.
“We expect Tiong Nam’s earnings in 2018E to be stronger on warehouse-capacity expansion and higher margins from the property division,” it said.
The research house said Tiong Nam is building new sales offices in various locations in emerging markets including China, Vietnam, Laos, Myanmar and Thailand.
The group’s warehouse capacity is expected to increase by 10.4% by end-2017E (from 4.764 million sq ft to 5.260 million sqf) and 35.1% by 2020E (7.105 million sqf).
The warehouse capacity expansion includes new facilities in Yangon and Savannakhet in Laos (est. 90,000 sqf).
Logistics business is coming under pressure underpinned by changing trade patterns. Tiong Nam’s move to expand regionally is timely and allows the company to stay competitive.
“We expect 10% on-year top-line growth for the logistics division, underpinned by capacity expansion and revenue streams from new segments.
“Both cross-border services and parcel-delivery services (instant, e-commerce delivery service) commenced operations in May 2017.
“Tiong Nam is the new kid on the block in last-mile delivery service; hence, the company is only expecting revenue contributions of RM1mil from Instant. We think the group’s effort to get a slice of the e-commerce market is commendable although it is still a small segment,” said Affin Hwang Research.