TIONG Nam Logistics Holdings Bhd’s warrants, TNLOGIS-WC, appear to be a cheaper proxy for investors looking to ride a potential rerating of the home-grown transport company, which plans to spin off some of its warehouses into a real estate investment trust (REIT).
TNLOGIS-WC carries a strike price of RM1 and a one-to-one conversion ratio. The five-year warrant has 22 months to expiry on Dec 26 next year.
TNLOGIS-WC has been trending lower over the last seven months, with the underlying share down 8.6% over the past three months. Closing at 58 sen last Wednesday, TNLOGIS-WC has skidded 23.2% from its 52-week high of 75.5 sen on July 14 last year.
At current levels, the warrant is fetching a slight discount of 0.63% to the mother share, which closed at RM1.59 last Wednesday. At zero premium to the underlying share, TNLOGIS-WC should be 2% or one sen higher, at 59 sen.
Five analysts tracking Tiong Nam, who updated their calls last month, value the stock at between RM1.71 and RM2.06 apiece, Bloomberg data shows.
If the underlying stock can rise 18% to hit the average target price of RM1.88, TNLOGIS-WC will theoretically be worth nearly 52% more, at 88 sen, assuming zero premium. Even at the lowest target price of RM1.71, the warrant should be worth 22% more, at 71 sen.
The RM1.71 target price was given by Kenanga Research analyst Steven Chan, who initiated coverage with a “market perform” call. “While we believe foreseeable positives have already been priced in at this juncture, we anticipate further upside from its warehousing REIT,” he says in a Feb 15 note.
Despite the neutral stance, the research house acknowledges the potential valuation upside with a 16-sen higher hypothetical valuation or a fair value of RM1.87 for Tiong Nam post-REIT.
Tiong Nam’s intention of spinning off some of its warehouses into a REIT is no secret, but the group is still deciding when to do it. The group currently operates 77 warehouses with total storage capacity of 4.9 million sq ft, making it the country’s largest warehouse operator.
Kenanga Research expects Tiong Nam to sell 31 warehouses, which the group has tentatively valued at RM665 million, to the REIT. Proceeds from the disposal are likely to be used to settle related debts of RM246 million.
“Given that it is still at the early valuation stage, we are taking a prudent stance over the materialisation timeline, expecting it to be finalised only by late FY2018. Thus, we have excluded it from our current valuations,” Chan says.
An early to mid-2018 announcement will still give TNLOGIS-WC a chance to run.
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