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Logistics company Tiong Nam reports weaker quarterly results

Johor, Malaysia-based logistics provider Tiong Nam (BM: 8397) has reported weak quarterly results and has revealed potential liquidity issues in its most recent filing to Malaysia’s stock exchange, Bursa Malaysia.

Tiong Nam has reported consolidated revenues of 155.5 million Malaysian ringgit ($37.1 million) for the three months ended September 30, which is the company’s second quarter in its financial year. Those revenues increased by 2.3% from the 152.1 million ringgit ($36.7 million) that it reported in the same quarter in 2018.

The company reported direct operational expenses of 115.8 million ringgit ($27.7 million), which is down marginally by about 1.6% on the corresponding period in 2018.

Profit before tax for the quarter was down significantly by just under 51% to stand at 2.6 million ringgit (just over $600,000) and the company reported a much decreased total comprehensive income of just under 1.7 million ringgit (just over $405,000) for the quarter.

Analysts at TA Securities regarded the news positively, pointing out that some of the company’s declines could be attributed to start-up losses in Tiong Nam’s new hotel segment. They expect future earnings to rise, “underpinned by increasing operational efficiency.”

Warehousing and logistics

Tiong Nam has several different business arms, the biggest of which is “Logistics & Warehousing Services,” which by itself accounts for about 87.7% of all of the company’s revenues in the latest quarter. The other divisions are not directly related to freight operations.

The company’s logistics business recorded 136.6 million ringgit of revenue in the most recent quarter, which is a marginal decrease of about 0.8% on the same quarter last year. Logistics and warehousing earnings before interest, taxation and depreciation rose by 19.5% to 21.7 million ringgit ($5.2 million). The segment’s profit before tax rose by 3.7% to 6.6 million ringgit ($1.6 million).

A note of caution: liquidity

Although TA Securities analysts were positive on the stock, assigning it a “buy” rating, they also sounded a note of caution over the company’s liquidity.

Tiong Nam’s current assets have declined by 7.9% from the end of March this year to stand at 452.5 million ringgit ($108 million). Meanwhile, current liabilities, which have fallen by 9.0%, stand at 500 million ringgit ($119 million).

So the company has fallen into working capital deficiency. And, as the securities analysts note, Tiong Nam has a lot of debt due and it might not be able to roll-over that debt. The analysts urged management to take action.

“We believe it is the right time for Tiong Nam’s management to revisit the idea of unlocking asset value via an establishment of REIT [a real estate investment trust] for all its warehouse properties. The current low interest rate environment is conducive for the setup of a REIT, where the market is hungry for yield. More importantly, the REIT could help to ease the cash liquidity pressure and improve gearing levels. As at 2QFY20, Tiong Nam’s net gearing rose to 1.4x with a total net debt of RM969.0mn. Current ratio stood at 0.94x with substantial amount of debt (RM328mn) due within the next 12 months. Also, the group’s gross gearing ratio of 1.42x is approaching the debt covenant threshold of 1.5x, which may affect its ability to roll over its debts in the future,” securities analysts at TA Securities wrote.

About Tiong Nam

Founded in 1975, as a “small-scale cargo business” inside Malaysia, Tiong Nam developed into cross-border business in 1984 when it began operations in Singapore. Today, it is also present in China, Laos, Myanmar, Thailand and Vietnam.

Tiong Nam offers customs brokerage and clearage, haulage, warehousing and last mile delivery. The company operates a fleet of over 1,500 trucks. The full fleet size, including vehicles of all kinds such as prime movers, box and refrigerated trucks, low-loaders and vans, stands at 2,795 transport vehicles. Tiong Nam employs 1,500 people across southeast Asia.

The company also operates a network of 83 warehouses and distribution centers with a total capacity of 5.68 million square feet as of March 2019.

Malaysia’s economic boom

This graphic shows a seven day moving average of shipments from Malaysia into the U.S. and it is based on U.S. Customs data. A shipment is a single customs filing, so there could be multiple shipments per shipping container. In this graph, while the day-to-day market shows volatility, the overall trend appears to be for growth in shipments of about 60% year-on-year. Source: FreightWaves SONAR.
These two graphs give some indication of why shipments are increasing from Malaysia. It is well known the international freight movements correlate closely with wealth. The wealth a population has tends to go hand-in-hand with increased volumes of freight. As can be seen from the map and especially from the chart, right, Malaysia has massively increased its national wealth over the last twenty or so years. Source: FreightWaves SONAR.
There’s currently a lot of excitement around Vietnam, especially because of all the trade war issues between Washington and Beijing. It may be worth noting that while Vietnam is on a phenomenal growth trajectory (left) both Malayasia (blue) and Thailand (orange) are hardly experiencing sluggish growth trajectories either. Meanwhile, in GDP terms, both Thailand and Malaysia are already much bigger than Vietnam. Source: FreightWaves SONAR.