Stock picks for 2016: Tiong Nam Logistics Holdings

by **Cals** Mon 04 Jan 2016, 23:27

Stock picks for 2016: Tiong Nam Logistics Holdings

By Kamarul Anwar / The Edge Financial Daily | January 4, 2016 : 10:06 AM MYT

This article first appeared in The Edge Financial Daily, on January 4, 2016.

[size=16]Tiong Nam Logistics Holdings Bhd ([You must be registered and logged in to see this image.] Valuation: 1.80, Fundamental: 1.10)

[You must be registered and logged in to see this image.]

Tiong Nam Logistics Holdings Bhd saw its share price soar by as much as 38.89% in a month to hit a one-year high of RM1.50 on Nov 9, 2015, after The Edge weekly reported in early October 2015 that the Johor-based delivery and warehousing company was going to park its warehouses under a real estate investment trust (REIT).

Despite the rise in its stock, Tiong Nam was still trading at a trailing 12-month price-earnings ratio (PER) of 8.48 times last Thursday — lower than its peers, such as Harbour-Link Group Bhd ([You must be registered and logged in to see this image.] Valuation: 1.80, Fundamental: 1.70), Tasco Bhd ( Valuation: 1.40, Fundamental: 1.80),Freight Management Holdings Bhd ( Valuation: 1.80, Fundamental: 1.00) and Transocean Holdings Bhd ( Valuation: 0.90, Fundamental: 0.55), which are trading at a double-digit PER.

There are various possibilities for Tiong Nam once it conducts the REIT spin-off, which reportedly could happen in the second half of this year.

The most obvious one would be to bring down its gearing ratio. Analysts have noted that its high debt load — which came to 1.04 times its equity after deducting the cash in hand — could be a reason why it gets a lower valuation against its peers.

Regardless of whether Tiong Nam pays off its RM521.22 million borrowings with the initial public offering (IPO) proceeds or not, its gearing level will be lower with a huge cash pile boosting its shareholders’ funds. It’s only a matter of how much Tiong Nam will make from the REIT unit’s sale, where it was reported that the trust is looking at having a RM1 billion valuation.

Secondly, will Tiong Nam finally have a more comparable price-earnings valuation once its logistics business has a bigger share in the group’s profit contribution? Although Malaysia’s listed logistics have distinctive business models, they are still in the same sector.

There’s also the possibility of Tiong Nam dangling special dividends to its shareholders from the IPO proceeds. Whatever the possibilities are, the REIT spin-off is likely to bring some excitement to Tiong Nam’s counter once the details are made official.

Compared with its closing price of RM1.10 on Dec 31, 2014, Tiong Nam’s share price jumped by 24.5% to close at RM1.37 last Thursday, giving it a market capitalisation of RM570.81 million.

[/size]