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Tiong Nam sees solid demand amid supply chain stress

Tiong Nam sees solid demand amid supply chain stress

21 Aug 2021

With a warehousing capacity of six million square feet, Tiong Nam Logistics Holdings Bhd stands to benefit from the continued strain in global supply chain.

The stress in the global supply chain is due to the Covid-19 pandemic that continues to rage on as new variants of the disease are detected.

A significant amount of factory operations globally remain interrupted. Earlier this week saw the partial shutdown of the world’s third-busiest container port, the Ningbozhoushan port in China.

These developments are likely to spur demand for warehousing space as companies take more cognisance of their future raw material requirements. Logistics service provider Tiong Nam is hoping to ride on this demand.

The company’s managing director Ong Yoong Nyock tells Starbizweek that it is investing to increase its warehousing capacity by 22% by the first quarter of 2024.

“We have a new 225,000-sq-ft warehouse coming on stream this year in Seelong, Senai, and have recently announced the construction of a new 1.1 million-sq-ft warehouse at Senai Airport City. These expansions will expand our total warehousing capacity to 7.3 million sq ft in the financial year ending Mar 31, 2024 (FY24), while other potential expansions are also being planned,” Ong says.

“The warehouse capacity expansions allow us to pursue new customers. We have secured a renowned multinational (MNC) client that will lease the upcoming 1.1 million-sq-ft facility in Senai Airport City on an exclusive basis, hence our utilisation rate will hover around the 75%-80% range,” he adds.

Tiong Nam’s warehouse utilisation stood at 80% as at end-march 2021, and this is an increase from 75% a year ago.

“With the gradual easing of social restrictions expected to spur the economy, we believe there will be higher demand from various industries for warehousing,” Ong says.

He points out that Tiong Nam services companies in industries such as food and beverage, information technology, electrical and electronics as well as oil and gas.

“Our wide sector coverage means we are not subject to the vagaries of any one sector. We are beneficiaries of the trend where companies are accelerating outsourcing to total logistics providers like ourselves,” Ong says.

“Furthermore, the unresolved Us-china trade war has led to a quicker pace of supply chain diversification among global companies into South-east Asia. This will spur more demand for logistics and warehousing providers with extensive regional infrastructure like ourselves,” he adds.

Ong anticipates that demand would grow from MNCS in the near future. This segment’s revenue contribution has exceeded 30% in FY21 from only 10% in FY16, says Ong.

“We are targeting higher contribution from MNCS in the coming years,” he adds.

On its outlook for the coming FY22, Ong says earnings would register growth driven by several factors.

“We are confident of registering growth in FY22, driven by new customers and higher volume from existing customers. Additionally, our earnings for FY22 will be enhanced by the dilution of our majority stake in our loss-making subsidiary Terminal Perintis Sdn Bhd (TPSB),” Ong says.

Commenting on its gearing level that is at 1.43 times following the recent Senai Airport City acquisition, Ong says this is at a manageable level.

“Our net gearing for the past three financial years was more than one times, as it comprises mainly long-term borrowings for our warehouse assets. The gearing is backed by a tangible and value-accretive asset of new land, on which we will build a revenue-generating asset with a long-term lease,” he says.

He also notes that its net gearing level will reduce to 0.98 times based on FY21’S accounts following its decision to dilute its stake in TPSB. “As this comes before the expected completion of the Senai Airport City land purchase deal in 2022, we will remain in a comfortable gearing position for the foreseeable future,” Ong says.

Notably, the sale of the stake in TPSB also gives TPSB’S new shareholder, Create Fortune Enterprise Sdn Bhd (CFE), an option to buy up the remaining 49% eventually.

“We would like to focus our resources on expanding the logistics and warehousing business. Our new hospitality partner, CFE, may exercise its rights to buy the remaining 49% of TPSB’S issued shares from Tiong Nam over a five-year period,” Ong says.

The deal will also help lift its earnings outlook going forward as the loss-making TPSB would become an associate company.

“This will also free up our resources and balance sheet to focus on our expansion,” he adds.

Source: The Star

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