KUALA LUMPUR (Nov 28): TA Securities Holdings Bhd, which maintained its "sell" rating on Tiong Nam Logistics Holdings Bhd, said it is ceasing coverage of the stock due to a lack of rerating catalysts.

In a note on Tuesday, the research house lowered its target price to 70 sen (from 76 sen), and trimmed its earnings forecasts for Tiong Nam by 1.7% to 46.7% to RM5.2 million for the financial year ending March 31, 2024 (FY2024), RM37 million for FY2025, and RM68.7 million for FY2026, after factoring in higher financial expenses and staff cost.

Net profit fell 26.4% to RM1.22 million for the second quarter ended Sept 30, 2023 (2QFY2024), from RM1.65 million for 2QFY2023, on increased finance cost and direct operating expenses, despite revenue growing 3.7% to RM183.53 million from RM177 million, supported by a stable source of income from the logistics and warehousing services segment, and increased property development revenue. 

For the first half ended Sept 30, 2023 (1HFY2024), net profit was lower by 3.5% to RM1.96 million from RM2.03 million, while revenue rose 6% to RM376.32 million from RM354.86 million for 1HFY2023.

“Stripping out a fair value gain of RM12 million, disposal gain of RM1.2 million and other exceptional items, Tiong Nam’s 1HFY2024 core loss expanded to RM13 million, versus our FY2024 profit forecast of RM9.8 million. The earnings miss was due to higher-than-expected cost of operations (wage and interest expenses) of the logistics and warehousing segment,” said TA Securities. 

The research house said Tiong Nam’s outlook will remain challenging, no thanks to rising payroll costs and lingering worker shortage issues. Also, the supply of warehousing space is expected to outpace demand, exerting pressure on logistics and warehousing margins going forward. 

“The company obtained the certificate of completion and compliance in August for its mega warehouse in Senai to commence operations. As such, we can expect rental income to rise from 3QFY2024. Having said that, that revenue from the Senai warehouse will solely be rentals, as the group is not involved in logistics operations of its clients,” the research house added. 

Tiong Nam last closed at 72.5 sen on Monday, with a market capitalisation of RM380.09 million.

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Tiong Nam Logistics posts smaller 2Q net profit on increased finance cost, direct operating expenses