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Sunday, November 29, 2015

Tiong Nam to ride on e-commerce boom

Saturday, 28 November 2015

Tiong Nam to ride on e-commerce boom

Logistics players well positioned to benefit from growth
IN China, the world’s largest e-commerce market, there is hardly anything that one cannot buy online.
The e-commerce industry there is worth billions, growing by 31% in 2014, valuing the entire industry at more than 13.4 trillion yuan (RM8.8 trillion).
Clearly, that trend has not fully caught on closer to home with online retail sales in major Asean countries including Malaysia reportedly worth only some US$7bil (RM29.7bil), comprising a minute percentage of total retail sales in the region.
This suggests there is still plenty of potential for growth, if figures in China are anything to go by.
More than that, the e-commerce industry brings with it opportunities for companies like logistics players to expand their businesses because if customers cannot be sure to get the goods ordered delivered on time and in good condition, buying online would be largely meaningless.
In Malaysia, one company which is a likely beneficiary of the future growth of the e-commerce industry in the region is the country’s largest trucking company, Tiong Nam Logistics Holdings Bhd.
Tiong Nam has about 2,000 trucks of various capacities including open, box/bonded and refrigerated containers, enabling it to transport goods of varying temperatures including dry, chilled and frozen.
The Johor-based company also owns more than 70 warehouses in the region with a combined storage capacity of over 5.7 million sq ft including general warehouse, bonded warehouses, cold rooms and free trade zone warehouses.
Notably, it manages some 503,341 sq ft of cold-room space, making it possibly one of the largest cold-room service providers in the country.
Tracking what has been happening in China where major e-commerce players like Alibaba Group have been snapping up stakes in logistics companies to complement their overall businesses, observers point out that Tiong Nam’s operations could also attract a fair bit of interest from such companies even as growth in the area of online buying in this region starts to gain traction alongside a growing young population and a high mobile penetration rate which facilitates such activity.
To start off, Tiong Nam could offer its delivery services to these e-commerce companies.
Essentially, the entire ecosystem of an online business involves the e-commerce business itself, fulfilment, logistics and warehouse, of which the last two are Tiong Nam’s focus.
Currently, besides transporting goods within Malaysia, Tiong Nam is also involved in cross-border transportation services plying the Singapore-Malaysia and Malaysia-Thailand routes.
Tiong Nam’s assets in the form of its warehouses, which enjoy rental yields, have long been rumoured to be spun-off into a real estate investment trust (REIT) for their real value to be unlocked.
And now, it appears, according to sources familiar with the matter, the exercise is set to come to fruition in the early part of next year.
Based on the company’s latest accounts as at Sept 30, Tiong Nam has property, plant and equipment worth RM646.9mil, investment properties worth RM98.5mil and total borrowings amounting to RM521.2mil.
Assuming the REIT is listed at 2 times the current market capitalisation of the company, which stands at about RM600mil, the value of the REIT will be about RM1.2bil.
Based on the simple assumption of Tiong Nam holding a 50% stake in the REIT, that stake will be worth RM600mil, which it can use to pay off borrowings, transforming it instantly into a cash-rich company from one with high borrowings.
Like in most cases of firms which spin off their assets into a separate entity, shareholders of Tiong Nam are likely to be given exposure to the REITs as well.
What the company will do with the cash post-listing of the REIT remains to be seen when the exercise is finally completed.
Notably, Tiong Nam has reserves or retained earnings of about RM395mil, based on its latest accounts, which gives it sufficient leverage to conduct corporate exercises such as bonus issues and so on.
In an interview with StarBizWeek earlier this year, Tiong Nam said it was planning for a multi-storey warehouse, to be built within three to five years, allowing it to operate in a densely populated area as opposed to being located far away from population centres.
This will save it transit time, and will burn less fuel, translating into substantial cost-savings.
Among its other strategic business plans, Tiong Nam will also invest in more automated storage and retrieval systems for its warehouses to improve their efficiency levels.
About five years ago, the company made its foray into the property segment with a focus on industrial property. That move appears to have paid off, as this segment had contributed one-third to the group’s revenue by the financial year 2014 (FY14).
Tiong Nam counts among its flagship property projects the Tiong Nam Industrial Park 2 in Shah Alam and Tiong Nam Business Park in Nusajaya, Johor.
Apart from the sale of its industrial properties, Tiong Nam also rents out some of its buildings for recurring income.
Founded in the 1970s, Tiong Nam has over the years grown from a smallish cargo business to a total logistics player, providing services which include customs forwarding, cold-room facilities and express delivery as well as crane and forklift rental.
At the current price of RM1.45, its stock is trading at a price-earnings multiple of about 8 times. Comparatively, most of its peers are trading at above 10 times.
Controlled by the Ong family headed by patriach Ong Yoong Nyock, the company made a net profit of RM21mil for the six months ended Sept 30 on revenue of RM272.8mil.

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