TNLOGIS: Weaker Earnings, Lower Prices

Background

Tiong Nam Logistics Holdings Bhd ('TNLOGIS') is involved in logistics & warehousing and property development. For FY2018, TNLOGIS plans to spend about RM100 million on its expansion plan for its logistics and warehousing network across South-East Asia. This is in addition to RM287 million spent in FY2017 & FY2016 which raised its warehousing capacity to 4.8 million and 5.3 million sq ft. In FY2018, this capacity will again be raised to 5.9 million sq ft. The company is targeting to have a warehousing capacity of 7.1 million sq ft by FY2020. This massive expansion is part of the group's thrust into the e-commerce & cross-border transportation services. For more on the expansion pla, go here.



Recent Financial Performance

We can see that TNLOGIC's revenue has been rising steadily over the past 6 quarters but its earnings were sharply lower in the last 2 quarters due to start-up cost for its instant e-commerce & cross-border transportation services which have not reached the breakeven mark.


Table 1: TNLOGIS's last 11 quarterly results

Graph 1: TNLOGIS's last 11 quarterly results

Historical Financial Performance

TNLOGIS's financial performance has been commendable in the past 5 years. While revenue is still fairly stable, earnings declined due to lower earnings from the logistics and warehousing segment.

Table 2: TNLOGIS's last 10-year results

Graph 2: TNLOGIS's last 10-year results

Financial Position

As at 30/9/2017, TNLOGIS's financial position is deemed adequate with current ratio at 1.36x while gearing ratio is elevated at 1.46x. TNLOGIS will have to raised capital to address the high gearing or to inject its warehouses into a REIT to bring down the borrowings of the group.

Valuation

TNLOGIS (closed at RM1.33 yesterday) is now trading at a trailing PER of 8.2x (based on last 4 quarters' EPS of 16.2 sen). at this PER, TNLOGIS is deemed fairly valued,

Technical Outlook

TNLOGIS has been sliding steadily since it peaked at RM1.87 in April (see Chart 1). In August, TNLOGIS broke below its 200-day EMA line at RM1.60. It has just broken below the long-term uptrend line at RM1.35 on Nov 24.


Chart 21 TNLOGIS's daily chart as at Dec 5, 2017_12.00  (Source: Malaysiastock.biz)

The previous price correction in 2014-2015 saw the share price finding support at the 180-week EMA line. TNLOGIS is now at the 180-week EMA line and we will see whether this level will serve as a support for the share price for the next few weeks.


 Chart 2: TNLOGIS's weekly chart as at Dec 5, 2017_12.00  (Source: Malaysiastock.biz)

Conclusion

Based satisfactory financial performance - albeit current weaker result - TNLOGIS is a good stock to considered for long-term investment due to its exposure to the growing e-commerce logistics business. Current valuation is fairly reasonable after a sharp price correction. The downside is slower uptick of its expanded logistics network which may lead to weak earnings and further weakness in share price ahead. In view of this, you should exercise careful discretion if you choose to add thiss stock in your portfolio.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.