Following the Preliminary Collaboration Agreement between Tiong Nam Logistics Holdings Berhad’s wholly owned subsidiary, Tiong Nam Logistics Solution, and JLand Group Sdn Bhd the two parties have entered into a joint venture agreement to invest in a new company called JTN Logistics Park Sdn Bhd. The former has a 51% stake in JTN, while the latter owns the remaining 49%. The parties will be jointly developing a 300-acres land within the Phase 1 Logistics Park at Sedenak Tech Valley.
JTN will be acquiring the 99 years leasehold land measuring 300 acres for a purchase consideration of RM52.3m (RM4 per sq ft). This is to be funded by bank borrowing and advances from shareholders of which the allotment of shares is to be completed in the next 3 months. It was agreed that the development costs of the JV Project shall be sourced from Tiong Nam and/or external financing with no funding from JLG.
MIDF views the initiative as neutral due to the long gestation period of the JV Project, with the land development only expected to commence 3 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.
The research house is maintaining its TP of RM0.68 (FY24F EPS pegged to 22x), but recommends taking profit after the recent price rally. Hence, it downgrades its call on Tiong Nam from NEUTRAL to SELL. Tiong Nam has seen thinning profit margins due to mounting cost pressures and its net gearing has soared to 1.4x as at 1HFY23 or Sep-22 (the highest relative to its peers) due to its large-scale expansion. A potential upside would be an early possession of its 1.1m sq ft 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 complete in Nov-23, the warehouse was already 75% completed in Nov-22. However, MIDF says it remains cautious on the volatile earnings trend as the Group continues to invest in its expansion projects
