KUALA LUMPUR: Tiong Nam Logistics Holdings Bhd's logistics and warehouse segment is expected to remain resilient in the financial years ending March 31, 2021 to 2023 (FY21-FY23).
This, according to Affin Hwang Investment Bank Bhd, was likely to offset the prolonged losses from the hotel segment due to the negative impact of Covid-19 on tourism activities.
Affin Hwang analysts Azhani Hashim and Loong Chee Wei said the hotel segment could not be turned around in FY21-FY23 as it was likely to remain loss-making with occupancy rates remaining below its break even level of 50 per cent.
"The property segment is also expected to be lacklustre due to the overall property glut in Malaysia. Weakness in the property market has shrunk Tiong Nam's bottom line as the contribution from the property segment to group earnings before interest, taxes, depreciation, and amortisation (Ebitda) has fallen to 17 per cent and 20 per cent in FY19 to FY20 from about 50 per cent in FY15 to FY18," they said in a report today.
Affin Hwang said Tiong Nam's logistics and warehousing services might post stronger earnings in the first quarter (Q1) of 2021 before normalising in the next few quarters with margins reverting to pre-Movement Control Order (MCO) levels.
"We believe this segment will remain resilient with single-digit revenue growth per year while expecting profit before tax in the RM30 million to RM38 million range in FY21-FY23.
"Demand in this segment is sustainable due to robust demand from Tiong Nam's multinational companies clients, which contributed about 29 per cent of the total logistics and warehouse revenue in FY19," the analysts said.
They added that Tiong Nam was well-positioned to grow this segment given its fully integrated service and extensive network across Southeast Asia.
They believe Tiong Nam was looking to dispose of its hotel assets at the right price.
However, it will be challenging to arrive at an attractive price in the near term, given the weak property market and soft tourism industry.
Azhani and Loong said stagnant property market would also continue to depress Tiong Nam's property segment contribution.
The weakness will continue in the short to medium term due to weak business sentiment dampening the purchase of industrial and commercial properties,.
Affin Hwang reiterated its "sell" call with a lower 12-month target price of 32 sen per share.
This is after factoring in a high effective tax rate, a lower logistics and warehouse Ebitda margin assumption as well as adjustments to its borrowings and interest rate assumptions.