KUALA LUMPUR: MIDF Research has downgraded its rating on Tiong Nam Logistics Holdings Bhd to "Sell" and recommended investors to take profit after its recent price rally.
It noted that Tiong Nam had seen thinning profit margins due to mounting cost pressures and its net gearing had soared to 1.4 times as at the first half of financial year 2023 (FY23) due to its large-scale expansion.
"A potential upside would be an early possession of its 1.1 million square feet mega warehouse in Senai which will be leased to an MNC as well as cross-selling opportunities that could moderate from this.
"Initially targeted to be completed in November 2023, the warehouse was already 75 per cent completed in November 2022.
"However, we remain cautious on the volatile earnings trend as the group continues to invest in its expansion projects," it said.
MIDF Research is neutral on Tiong Nam's latest joint venture with Johor Corp.
Tiong Nam's wholly-owned Tiong Nam Logistics Solution (TNLS) entered into a joint venture agreement with JCorp's unit JLand Group Sdn Bhd (JLG) to invest in a new company called JTN Logistics Park Sdn Bhd (JTN).
The former has a 51 per cent stake in JTN, while the latter owns the remaining 49 per cent.
"We are neutral on this partnership due to the long gestation period of the joint venture project, with the land development only expected to commence three years after relevant approvals have been obtained and the necessary consultation has been completed.
"According to the management, Sedenak Tech Park will house industrial properties which will be marketed for the expansion and relocation of manufacturers, particularly from Singapore.
"The group believes that the proposition is attractive given the relatively lower land price and operating costs as well as the tax incentives," said MIDF Research.
It maintained a target price of 68 sen for Tiong Nam.