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Thursday, April 19, 2018

Kenanga Research target price for Tri-Mode at 74 sen

Thursday, 19 Apr 201810:21 AM MYT

Historically, Tri-Mode had registered superior earnings growth compared to industry peers.

KUALA LUMPUR: Kenanga Research has a target price of 74 sen for Tri-Mode System (M) Bhd -- which is seeking to list on the ACE Market – based on FY19E price-to-earnings ratio (PER) of 15 times. The IPO price is 61 sen.

In its research note on Thursday, it derived its PER valuation for freight and logistics services provider Tri-Mode based on a blended benchmark against two of its comparable peers with highly similar business operations.

The first peer is Freight Management Holdings (trading at nine times PER on FY17A), which is predominately engaged in freight services, with the bulk of its earnings derived from sea freight.

The secnd is Xinhwa Holdings (trading at 23 times PER on FY17A), which is predominately engaged in trucking and haulage services.

“Our ascribed valuation is also in-line with other integrated logistics players’ average,” it said.

Kenanga Research said Tri-Mode is a Malaysian based logistics provider, primarily engaged in the sea freight and container haulage business.

Via an IPO, it is seeking to raise RM26.4mil, implying a market cap of RM101.3mil upon listing, with bulk of the proceeds for business expansions.

Historically, Tri-Mode had registered superior earnings growth compared to industry peers, with Kenanga Research’s FY18-19E forecasts implying a five-year compounded annual growth rate (CAGR) of 26%.

Tri-Mode is primarily engaged in the provision of freight and logistics services. As at FYE17A, sea freight and container haulage contributed the bulk of the company’s gross profits at 51% and 37%, respectively.

Other segments include air freight (9%), freight forwarding (1%), warehousing (2%) and marine insurance (less than 1%). Revenue is primarily derived from Malaysia (c.90%).

The research house said of the RM26.4mil raised through IPO, 57% of it will be used to build its headquarters and distribution hub, with estimated completion by 3Q20.

Post-completion, this will contribute an additional 50,000 to 55,000 sq ft in warehousing capacity to the company’s current capacity of 11,800 sq ft.

Nonetheless, the premise is expected to bring costs saving benefits and improved efficiency as the company seeks to consolidate its operations under one roof.

Additionally, it comes with a larger parking area for its fleet, and in-house repair workshops to facilitate growth for its container haulage segment, with 2% of the IPO funds allocated for haulage fleet expansion.

Kenanga Research said its FY18-19E net profit of RM7.1mil to RM8.2mil implies a five-year CAGR of 26%.

For the past two years (FY15-17A), Tri-Mode displayed strong annual PBT growth of 17%/29%, which is superior among industry peers.

Comparatively, Tri-Mode’s two closest comparable peers, Freight Management and Xinhwa, posted earnings growth of -1%/+6% and +1%/-37%, respectively.

Integrated logistics players Tasco and Century Logistics posted 0%/0% and 0%/-32% earnings growth respectively.

The company had also indicated a dividend policy of 30%, translating to dividend per share of 1.3 sen to 1.5 sen for FY18-19E (implying 2.1%-2.4% dividend yields based on IPO price of 61 sen).

Additionally, balance sheet appears healthy, with the company poised to be in net cash position going into FY18-19 (from current net gearing of 0.3 times), with RM5m of the IPO proceeds used to repay borrowings, Kenanga Research said.


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