TNLOGIS (8397) - Tiong Nam Logistics Holdings Berhad – Tapping into E-Commerce Boom - Bull Bear Bursa
If you are one of those investors who is looking for investment ideas to tap on e-commerce boom, Tiong Nam Logistics Holdings Berhad (TNL) could be an interesting one.
Tiong Nam Logistics Holdings Berhad is one of the leading logistics players in Malaysia, which operates more than 4m square feet warehouse space and 2000 vehicles, making it one of the largest domestic integrated logistic players.
Key Investment Highlights
1. Strong economies of scale from “size”
TNL’s operating capacity provides strong economies of scale, allowing its to increase operating efficiency and reduce unit costs. According to the initiation report by MIDF research (dated 23 Sep 2016), the report highlighted an example stating that TNL counts multiple consumer electronic players as its clients allowing it to fill its trucks to make a single delivery from its warehouse to retailers who carries multiple brands. The economy of scale is even more beneficial for long distance transportation, i.e. states or cross-border due to the distance and time of travel. With this advantage in mind, TNL would be able to translate those cost savings to its clients by offering more competitive pricing for its logistic services.Furthermore, management also guided that TNL’s ambitious plan to expand its warehouse capacity by 50%, further strengthen its existing strong economies of scale. This is sensible, given the high utilization of its warehouses of around 93%, according to Hong Leong Investment Bank Research.
Chart 1: Size does matters (from MIDF Research)
2. Proxy to regional e-commerce boom (compiled from various sources, ie MIDF, Kenanga IB, Hong Leong IB)
With the bulk of Malaysia’s imports and exports being handled through sea and air freight, TNL has identified an opportunity in land transport: cross-border trucking.Management guided that a trip from China to Malaysia requires 5 days (half of 10 days required by sea freight). From cost perspective, land freight is between air freight (costliest option) and sea freight (cheapest option). Goods transported by sea or air will then have to be picked up by trucks at the port or airport which would incur additional time and money. Meanwhile, trucks can make several stops along routes (Shenzhen-Hanoi-Yangon-Savannakhet-KL-Singapore) to pick up or deliver items, ensuring that vehicles are laden with goods and maximising the journey.
Currently, the business is handling B2B clients for the delivery of parcels and documents. However, they aim to tap into the B2C market, riding the growth of the e-commerce industry. We believe the venture makes sense for Tiong Nam which is able to apply its strengths in warehousing and trucking. In essence, Tiong Nam would be able to provide an end-to-end logistics service, from the port to a consumer’s doorstep. With its strong existing competitive advantage via economies of scale, we believe there is a high possibility that such venture will turn out to be a sucessful one.
With the company already making test- runs for its cross-border trucking routes in ASEAN, commencement of operations is set to be in 1Q18. Leading up to this, TNL has newly established distribution centres in Shenzhen, Hanoi and Yangon, with one more in Laos expected to be established in FY18. The company seeks to use this as a platform to further tap into the e- commerce last-mile delivery, making them a one-stop centre for e- fulfilment services, especially for e-commerce firms in China looking to sell goods into Malaysia/Singapore. While we expect earnings impact to be minimal for the initial phases due to gestation, we also believe this venture carries great potential given that TNLOGIS is one of the only few players to have direct trucking routes between China and Malaysia/Singapore. We expect capex outlay for its initial operating year to be c.RM10m, mainly for its sales office as well as new warehouse to support this operation.
3. REIT listing a catalyst to share price; possibility of special dividends
It is not a secret that TNL is planning to inject its warehousing assets to form the first logistics REIT in Malaysia. The asset injection would allow TNL to unlock value of its underlying warehouses and realize a sizeable proceed to pay a special dividend, fund expansion or pare down its debt. Over the past few years, we saw successful examples in unlocking value via REIT listing in the cases of Sunway REIT and IGBREIT.
4. Undemanding valuation
TNL is currently trading at 8.29X PE, giving a trailing 12 months dividend yield of about 3.13%. This is undemanding, considering its logistics peers with exposure to e-commerce like GDex and POS are trading at PERs of 61.45X and 39.51X respectively. While we recognize the relatively high gearing of TNL could be a negative factor in comparison, we opine that the current valuation of TNL may not be factoring in a strong possibility of a successful venture into the e-commerce space nor the upcoming REIT listing. Hence, it still looks fairly attractive for those investors who want to tap on the e-commerce opportunities via the logistics sector.
Table 1: Key financial metrics
Disclaimer: The views above are opinions based on facts and subjective judgements. We do not take any responsibility for any actions rely on the information discussed.
TNLOGIS (8397) - Tiong Nam Logistics Holdings Berhad – Tapping into E-Commerce Boom - Bull Bear Bursa
http://www.en.bullbearbursa.com/2017/03/11/tiong-nam-logistics-holdings-berhad-tapping-into-e-commerce-boom/
