Tiong Nam’s growth strategy – trucking network linking Malaysia-Thailand-Myanmar-Laos-Vietnam-China

Cross-border trucking and e-commerce businesses could be the next drivers of growth for Tiong Nam Logistics Holdings Bhd.

According to analysts, Tiong Nam’s proposed expansion of its regional presence through establishing a trucking network linking Malaysia-Thailand-Myanmar-Laos-Vietnam-China will complement the core business of the logistics services provider and result in significant revenue growth upon complete set up.

Hong Leong Investment Bank (HLIB), for one, expects a one-year gestation period before significant revenue contribution materialises.

“We opine that there would be demand for land freight, as it is three times cheaper than air freight and is relatively time efficient.

“The cross-border linkage initiative would commence in mid-April 2017 and we believe that there would be a one-year gestation period before significant revenue contribution materialises,” HLIB said.

The investment bank noted that Tiong Nam had guided that a trip from China to Malaysia would take five days, compared with 10 days on sea freight, while from the cost perspective, land freight was between air freight (costliest option) and sea freight (cheapest option).

HLIB has maintained a “buy” call on Tiong Nam, with a higher target price of RM2.15, compared with RM2.06 previously.

Similarly, Kenanga Research is positive on Tiong Nam’s venture into cross-border trucking.

“While we expect earnings impact to be minimal for the initial phases due to gestation, we also believe this venture carries great potential, given that Tiong Nam is one of the only few players to have direct trucking routes between China and Malaysia/Singapore,” the brokerage explained.

Kenanga Research expects the capital expenditure outlay for Tiong Nam in the initial operating year to be around RM10mil, mainly for a sales office as well as a new warehouse to support the cross-border trucking operation.

“With the company already making test-runs for its cross-border trucking routes in Asean, commencement of operations is set to be in the first quarter of 2018.

“Leading up to this, Tiong Nam has newly established distribution centres in Shenzhen, Hanoi and Yangon, with one more in Laos expected to be established in the financial year ending March 31, 2018,” Kenanga said.

It noted that Tiong Nam would use that as a platform to further tap into the e-commerce last-mile delivery, thus making the company a one-stop centre for efulfilment services, especially for e-commerce firms in China looking to sell goods into Malaysia/Singapore.

Kenanga Research has maintained a “market perform” recommendation on Tiong Nam with an unchanged target price of RM1.71.

Meanwhile, MIDF Research said cross-border trucking and e-commerce ventures could provide new avenues of growth for Tiong Nam, while the prospects of the latter’s existing logistics and warehousing business continued to improve on demand pick-up.

The outlook on Tiong Nam’s property development segment, however, remained sluggish.

MIDF Research has maintained its “buy” call on Tiong Nam with an unchanged target price of RM1.93.

Source: The Star

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