BY NADYA NGUI

Slight improvement: HLIB expects Tiong Nam’s financial year 2017 earnings to increase slightly by 0.3 to RM54.7mil year-on-year

PETALING JAYA: Tiong Nam Logistics Holdings Bhd’s warehouse real estate investment trust (REIT) listing could potentially fetch a market cap of RM528.6mil, said Hong Leong Investment Bank (HLIB).

The research house said in a report that the amount would translate into a value of 50 sen a share.

“This potential corporate exercise would re-rate Tiong Nam’ logistics business, unlocking value for its shareholders,” HLIB said.

The research house believes that now would be a good time for Tiong Nam’s REIT listing, given the renewed interest on high dividend stocks.

It noted that the company remains significantly undervalued with further upside on its undeveloped land bank, the valuation of which has not been factored into the target price.

Previously, Tiong Nam’s business model of owning most of its warehousing assets through debt financing led to a high gearing level, which was a sore point among investors.

However, it said that warehousing assets owned by the company had seen appreciation in value over time and that the assets could now be monetised to relieve its balance sheet.

Its previous acquisitions of land had also open up the avenue for the company to venture into property business, HLIB said.

While the listing of its warehouses would improve its cash position significantly, HLIB added that it did not foresee large cash payout after the potential corporate exercise.

The company still has its expansion plans to increase its warehousing capacity, tapping on the long-term logistics growth.

“However, we do not rule out partial payout of the proceeds, which will also act as a share price catalyst,” it noted.

Despite the subdued property market outlook, the company still owns some 152 acres of undeveloped land bank with a potential gross development value of RM1.5bil, an upside catalyst as it has yet to account for the potential new launches.

HLIB expects Tiong Nam’s financial year 2017 earnings to increase slightly by 0.3% to RM54.7mil year-on-year as it factors in slightly lower revenue contribution from the property division due to fewer number of projects launched amid expectations of weaker property market.

“As for its logistics division, we impute a moderate growth of 5%, in line with the management’s expectations of stable growth in the logistics industry,” it said.