Tiong Nam Logistics Holdings Bhd 
(Sept 23, RM1.72)
Initiate buy call with a target price of RM2.16: Tiong Nam is set to expand its warehouse capacity by 50% in three years to cement its position in the industry. The group currently operates a 4.7m sq ft warehouse space and 2,106 vehicles, making it one of the largest domestic integrated logistics players.

We believe that the company has a compelling growth story as it capitalises on its competitive advantage of having lower unit costs due to its large and efficient operations, ability to ramp up capacity through optimal use of its assets and access to third party warehouse providers to cater to sudden surges in demand as well as a strong reputation and wide product offering allowing it to secure new high-margin accounts such as smartphone, automotive and tobacco companies.

We believe an injection of its warehouse assets into a real estate investment trust (REIT) could be in the works, potentially fetching a value of RM682 million or RM1.62 per share for the REIT alone. Assuming Tiong Nam maintains a 40% stake in the REIT and repays debt attributed to the assets, the company would still receive net proceeds of RM153 million, translating into 36 sen, which could be used to pay special dividends, fund future expansion or pare debt.

We like Tiong Nam for its market-leading position in the integrated logistics industry. Meanwhile, a successful listing of its logistics REIT could provide immediate rerating catalyst for the stock. — MIDF Research, Sept 23