Tri-Mode capitalises on warehousing growth momentum - MIDA | Malaysian Investment Development Authority
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Tri-Mode capitalises on warehousing growth momentum

Tri-Mode capitalises on warehousing growth momentum

16 Nov 2023

HAVING branched out into warehousing during the Covid-19 pandemic and reaped significant benefits, logistics services provider Tri-Mode System (M) Bhd will continue to work the segment on growing demand.

Its founder and group managing director Datuk Hew Han Seng tells The Edge that the revenue contribution from the warehousing segment, which increased fivefold to 7.6% for the year ended June 30, from the corresponding period the year before, is anticipated to reach at least 15% in the coming financial year after its third warehouse becomes operational.

Currently, the group has two warehouses in Pulau Indah Industrial Park (PIIP) in Klang, Selangor, measuring 85,000 sq ft and 28,000 sq ft respectively, while a third facility, slated for completion in the fourth quarter of this year, is under construction nearby.

The third facility comprises a three-storey office building with a total built-up area of 136,803 sq ft and warehousing storage space of 125,000 sq ft, with 24 loading bays to house up to 20,000 pallets.

“The addition of this third warehouse will more than double the current [warehousing capacity of] 113,000 sq ft to 238,000. The space in the third warehouse has been fully taken up as we have secured a letter of acceptance from our client for the warehouse space and services,” says Hew.

Major distribution centres such as IKEA, Shopee, Luxchem Corp Bhd and Samchem Holdings Bhd are located in PIIP.

Tri-Mode’s key warehousing customers are local conglomerate manufacturers of food and packaging. Declining to name the key customers, Hew says they are secured by long-term service contracts.

In addition, the group announced last Tuesday the proposed acquisition of three parcels of leasehold land encompassing 12 acres in Pulau Indah, Klang, for RM42 million to expand its warehousing and logistics capacity. Tri-Mode targets to have a total of at least one million sq ft of warehousing space, or 100,000 to 125,000 pallet spaces, in the next five years.

Tri-Mode expects the acquisition, which is to be funded internally and/or via bank borrowings, to be completed in the first quarter of 2024 (1Q2024) subject to shareholders’ approval at an extraordinary general meeting before the year end.

Tri-Mode’s 2022 annual report shows that the ACE Market-listed company’s net profit for the financial year ended Dec 31, 2019 (FY2019), which stood at RM2.56 million, moved upwards during the pandemic to RM5.54 million in FY2020, RM7.32 in FY2021 and RM10.47 million in FY2022. Revenue grew from RM81.81 million to a peak of RM133 million during the period.

Admittedly, revenue contribution from the warehousing segment, which stood at 1.6% and 1.8% in FY2021 and FY2022, was small compared with the core contributions from the sea freight and container haulage segments. However, Hew points out that the group’s diversification into warehousing and curtain siders, a supporting extension to its transport fleet for local distribution, was meant to capitalise on growing domestic demand while navigating the global supply chain woes wrought by the pandemic and compounded by the war between Russia and Ukraine and the recent crisis in the Middle East.

Meanwhile, the group’s proposed private placement, announced in September 2021, representing not more than 20% of the total number of issued shares, lapsed on Sept 21, 2022, after a six-month extension. Hew says the fundraising exercise was meant for the expansion of the warehousing arm.

“The group currently does not have plans for another private placement as the market situation is not suitable,” he says, adding that Tri-Mode’s land acquisitions and construction of the warehouses will be funded internally as well as via bank borrowings.

Hew controls the company with a direct stake of 50.2% and an indirect stake of 20.63% via his wife Datin Sam Choi Lai, who is an executive director of the company.

Uplift in integrated freight services expected post-4Q

Hew says the company continues to face numerous industry challenges such as a worldwide downward trend in the ocean and air freight space because of price undercutting in certain service sectors and recruitment difficulties due to the long working hours and commitment required in logistics services.

“We also took other steps such as introducing cost reduction exercises to improve the company’s profitability, such as cost savings from wastage, changing from conventional operations to digitalised operations (fleet management), and computerising our inventory management. We have also had to deal with rising operational costs and a manpower shortage,” he says.

For the six months ended June 30, Tri-Mode’s sea and air freight segments contributed 47.2% and 2.7% respectively to its revenue, falling from 78.2% and 6.8% year on year. Warehousing (7.6%), container haulage (38.7%), freight forwarding (3.3%) and marine insurance (0.4%) grew from 1.4%, 11.8%, 1.5% and 0.2% previously.

Hew attributes the reduced revenue contributions from the sea and air freight segments to the decreasing trend in global sea and air freight rates and volume as well as the slowdown in global trade volume post-pandemic.

Having observed an improvement in the third quarter, he forecasts a more pronounced recovery post-4Q amid “seasonal requirements, anticipated recovery of the world economy and a more stable local political environment”.

“On the other hand, our haulage and freight forwarding services have remained stable and are experiencing continuous growth, aligning with the positive trajectory of the national economy,” says Hew.

“Lastly, our e-commerce logistics platform [Hi-Clicks] offers the convenience of consumers engaged in overseas online shopping (for example, the US, Japan, South Korea and Taiwan) and delivery back to Malaysia. Cross-border online shopping will become more common among consumers and the demand for these services will be higher when it reaches a more mature stage, and our team is dedicated and well prepared to meet the demand when the market eventually reaches that point.”

For 2Q2023 ended June 30, Tri-Mode posted a net profit of RM442,000, down 60.6% from RM1.1 million a year earlier, on 41.5% lower revenue of RM17.9 million. Net profit of RM743,000 for the cumulative six-month period was a fraction of the RM6.3 million recorded in the same period the year before, on revenue of RM34.8 million compared with RM70.7 million earlier.

In a Bursa Malaysia filing, the group attributed the lower revenue to seasonal factors such as sales fluctuations during festive periods such as Hari Raya and Chinese New Year given the shorter working days, as well as lower global freight rates compared with the hiked up global freight rates during 2022, trade barrier tension between the US and China, and slowdown in global commerce volume.

“Gross profit reduced by 20.49% as a result of lower revenue compared with the previous year’s corresponding quarter. However, the group managed to increase its gross profit margin from 15.01% in 2022 to 20.39% in 2023 despite lower revenue achieved during the quarter in review,” says Tri-Mode.

On dividends, Hew says the board of directors intends to continue paying out at least 30% of the group’s net profit excluding non-recurring income. The group paid out a dividend per share of one sen in FY2020 and FY2021 and 1.05 sen in FY2022.

Bloomberg data show that the sole analyst — Rakuten — covering the counter has a “buy” call with a target price of 66 sen.

The share price of Tri-Mode had fallen 24% from this year’s high of 45 sen at end-January to close at 34 sen last Tuesday, valuing the company at RM56.44 million. 

Source: The Edge Malaysia