This article first appeared in The Edge Financial Daily on January 29, 2019

Tri-Mode System (M) Bhd
(Jan 28, 39 sen)
Buy with a target price (TP) of 63 sen: Tri-Mode System (M) Bhd, trading below its initial public offering price since it was listed on Bursa Malaysia’s Ace Market, is expected to see a change in fortune as its warehouse and distribution centre expansion starts contributing in financial year 2020 (FY20).

Integrated logistics player Tri-Mode was founded by entrepreneur Datuk Hew Han Sang in 1992, with a track record of over 27 years in sea freight, container haulage and warehousing across Penang Port, Pasir Gudang, Port of Tanjung Pelepas, the Kuala Lumpur International Airport and Penang Airport.

It operates a relatively new fleet of 99 prime movers and over 500 trailers, averaging less than four years old at about a 90% utilisation rate.

Tri-Mode’s growth catalyst will come from its new headquarters (HQ), warehouse and distribution hub on a 12-acre land at Pulau Indah Industrial Park, consolidating business operations and developing new warehouse infrastructure, adding over 91,000 sq ft. The site is within the vicinity of IKEA’s regional distribution and supply chain hub — the third-largest IKEA distribution centre in the world with an investment of RM908 million.

Tri-Mode is also capturing inbound courier services via its recently launched e-commerce platform HiClicks Malaysia, essentially taking a slice of the lucrative e-commerce business without a major investment, about RM1 million. It provides an end-to-end logistics service for overseas purchases and a delivery arrangement in Taiwan, South Korea, Japan and the US.

Tri-Mode’s balance sheet remains in net cash and it has indicated a dividend policy of 30%, translating into a dividend yield of 3.8%. Currently, Tri-Mode is at an inflection point, poised to see double-digit earnings growth in the next few years, chalking a sustained earnings per share growth of 14% in FY19 and 27% in FY20. — Rakuten Trade, Jan 28