In a report, TA Securities Research said the group could capitalise on a warehousing shortage next year as companies embark on more aggressive inventory management to counter global supply chain disruptions and a shortage of containers in the region.
The group has started several new warehouse projects with construction already ongoing in Shah Alam in Selangor and Senai Airport City in Kulai, Johor.
Meanwhile, plans are being made for further warehouse construction in Tanjung Langsat, Kempas and Port of Tanjung Pelepas in Johor Baru and Senoko in Singapore.
In total, the group's ongoing and planned warehouse construction projects, which are projected to be completed in FY22 to FY24, have a total capacity of about 2.45 million sq ft.
In addition, TA Securities noted that Tiong Nam recently acquired a new warehouse in Port of Tanjung Pelepas in 2QFY22, with a built-up area of 158,013 sq ft.
"This was a timely acquisition due to acute shortage of warehousing space in the market and Tiong Nam’s warehouses are practically full with occupancy rate of 87% in 2QFY22," it said.
Following an update at Tiong Nam's analyst briefing, TA Securities said Tiong Nam had begun construction of the 1.09 million sq ft warehouse in Senai, its largest facility to date, and is on track to meet the completion deadline in 1Q23.
Tiong Nam had announced in August this year that it had signed a 10+5 years lease agreement for the warehouse with an MNC.
The lease will commence in 2023 and is expected to generate an annual profit of RM10mil from fixed rental collection and warehouse management.
In addition, the "Green" property will be qualifying and fulfilling all criteria of investment tax allowance, which is expected to generate tax savings of about RM30mil over time.
"We believe this MNC contract to be a boon to Tiong Nam’s logistics business where it can cross sell the logistics service to this MNC at a later stage," said TA Securities.
Meanwhile, Tiong Nam's earnings are expected to improve from 3QFY22 onwards as its management said all cost escalations from increased labour and fuel expenses in its logistics and warehousing division have been blended into 3QFY22 revenue.
The recovery in hotel rooms sold after the upliftment of interstate travel bans will also help to lift hotel segment earnings.
TA Securities has maintained its "buy" call and FY22-24 earnings projections on Tiong Nam, as well as its sum-of-parts valuation of RM1.05 a share.
"At RM1.05, our valuation implies a discount of 0.3x multiple to Tiong Nam’s NTA/share of RM1.50, which is reasonable considering that Tiong Nam is still toying with the idea of setting up a warehouse REIT, which has been delayed since 2015," it said.