PETALING JAYA: Tiong Nam Logistics Holdings Bhd’s move to cut its stake in a non-core business will reduce further earnings erosion for the group as it focuses on its core profitable logistics operations.

       Note that logistics and warehousing were its main revenue drivers for the financial year ended March 31, 2021 (FY21), making up 98.2% of sales, even as the hotel and property segments saw its worst year in the midst of the pandemic.

       Last week, Tiong Nam announced that it had entered into a shareholders agreement with Create Fortune Enterprise Sdn Bhd (CFE) for the subscription of 5.204 million new ordinary shares in Terminal Perintis Sdn Bhd (TPSB) at a total consideration of about RM36.70mil.

       This subscription resulted in the dilution of Tiong Nam’s shares in TPSB, reducing it from a wholly owned subsidiary to a 49% associate company.

       TPSB is involved in property development, property investment and hotel operations. The company owns and operates Pinetree Marina Resort.

       The exercise is part of Tiong Nam’s streamlining effort to focus on its core business of logistics and warehousing.

       “The divestment of a majority stake is the right step as TPSB is a loss-making and non-contributing subsidiary,” opined MIDF Research in a report yesterday.

       Tiong Nam logistics warehouse

       “Based on the latest audited financial statement, TPSB recorded a loss after tax of RM22.29mil and its net tangible asset was RM35.26mil.”

       Pinetree Marina Resort, which sits on 3.2 acres of land with an estimated gross development value of RM476.7mil, was completed in 2018.

       However, since completion, take-up rate has been dismal at only 56.7%.

       MIDF pointed out that the proceeds raised from the exercise will, instead, be better used to strengthen Tiong Nam’s balance sheet and realign its focus to more earnings accretive business.

       “Management has guided that the proforma effects of carving out TPSB will increase net assets per share to RM1.56 from RM1.54.

       “On a proforma basis, its impact is more visible on earnings per share (EPS) as it affects EPS to become 4.52 sen per share from 2.31 sen,” it said.

       The brokerage remains upbeat on the long-term potential of Tiong Nam, as it is one of the biggest logistic players in Malaysia with notable regional presence in comparison to its peers. The transaction will also add to its future performance.

       As such, MIDF has revised its earnings estimate for FY22 to RM22.2mil from RM5.2mil previously.

       It kept its “buy” call on the stock with a higher target price of RM1.05 from RM0.93 previously to account for the improved prospect of the group financials.

       “We opine that the logistics and warehousing segment of Tiong Nam will not only cushion the losses from the property segments but also assist in boosting earnings, going forward.

       “We believe that this will turn the tide for the group’s financial performances in the future as Tiong Nam graduated from a string of financial losses to projecting earnings growth,” it said.