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A tough year expected for Tiong Nam’s industrial property business — MIDF

KUALA LUMPUR (March 26): The tough operating environment amidst the COVID-19 outbreak will make it a challenging year for Tiong Nam Logistics Holdings Bhd’s property segment as property purchases will be delayed by businesses to conserve more cash, said MIDF Research.

In a note, the research house pointed out that most of the group's property developments comprise industrial and commercial properties, such as Tiong Nam Business Park.

The research house is maintaining its “sell” call on the stock, but has trimmed its target price to 32 sen from 37 sen previously.

MIDF opined that the company lacked a rerating catalyst in the immediate term, especially in the property segment with a remaining unsold gross development value (GDV), which is more than RM300 million as of Dec 30, 2019.

“We believe that Tiong Nam will face difficulty in launching the Kota Masai project in time by 2HFY20 given that the majority of its property projects are located in Johor.

“Recall that in [2019], Johor saw a 10.4% decline in office occupancy rates, substantially higher than Penang that faced a 1.4% drop. Meanwhile, Johor accounted for most of the property overhang in Malaysia with 18,517 units as at [the third quarter of 2019] followed by Selangor and Kuala Lumpur with 7,226 and 5,170 units respectively.

“We expect Tiong Nam will face difficulty in achieving a normalised Profit after Tax and Minority Interests (PATAMI) of at least RM40 million seen in the past years where the property development segment contributed at least 20% to Tiong Nam’s overall topline,” it said.

Meanwhile, the group's hotels and dorms, which are located in Johor, are also expected to see their rates adversely affected by travel bans instituted due to the outbreak, leading MIDF to conclude that its hospitality arm would be loss-making this year.

However, COVID-19’s blow to its logistics business is expected to be cushioned by demand from multinational corporations, especially those in fast-moving consumer goods.

At 10.40am, Tiong Nam traded 2 sen or 5.41% lower at 35 sen, with a market capitalisation of RM166.1 million.

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