This article first appeared in The Edge Malaysia Weekly on July 14, 2025 - July 20, 2025

TIONG Nam Logistics Holdings Bhd ­(KL:TNLOGIS) is finding it harder to purchase strategic land parcels to build logistics and warehousing facilities, especially in Johor, which has seen an influx of investments from data centre developers over the last three years, says executive director Victor Ong when met at the group’s headquarters in Johor Bahru (JB). He adds that Tiong Nam is also facing rising development costs.

These circumstances have thrown a spanner in the works for Tiong Nam’s long talked-about real estate investment trust (REIT) spin-off.

“We bought the last piece [of land] inside the [Port of Tanjung Pelepas in Johor]. Now we have to go further and further away [for suitable parcels]. Construction [costs, including land cost] now is RM300 psf. It used to be RM180,” laments Victor.

Victor, 44, is the son of Ong Yoong Nyock, founder and largest shareholder of Tiong Nam with a 53.4% stake.

Nevertheless, the group is still allocating around RM100 million a year for land acquisitions for the purpose of building warehouses and logistics facilities. For the current financial year ending March 31, 2026 (FY2026), Tiong Nam has already spent around half of that amount, says Victor.

However, these investments are not just focused on Johor, as Tiong Nam is continuing to expand its presence and network in the Klang Valley as well as in the northern region, especially in Kulim, Kedah.

The group also recently ventured into Kota Bharu, Kelantan, with a 107,604.93 sq ft property, which is being turned into a warehouse for an express service logistics company.

Note that the data centre investments in Johor are not within the free zones of Port of Tanjung Pelepas. However, competition for land in strategic industrial zones is heightening in Johor, not least because of the influx of data centre investments owing to the state being promoted as a regional growth corridor.

According to data from the National Property Information Centre (Napic), the value of development land transactions in the JB district in the first quarter (1Q2025) stood at RM559.9 million — almost six times higher than that in 1Q2024.

The number of development land transactions during this period increased to 58 from 46.

While these data could be skewed by the surge in land prices in JB city rather than the industrial areas surrounding it, they still show a huge jump in just one year.

At the same time, the value of industrial property transactions in the JB district declined to RM771.09 million in 1Q2025, from RM1.15 billion in 1Q2024. However, transactions in the Kulai district surged to RM882.05 million in 1Q2025 from RM286.68 million last year.

The Kulai district lies to the north of the JB district and it is where the Senai International Airport is located. The district is home to various industrial areas, including Senai Airport City and Sedenak Tech Park, where many of the multibillion-ringgit data centres call home.

The data supports Victor’s assertion that investments into logistics and warehousing facilities are moving further afield in Johor. Tiong Nam itself has been investing in warehouses and logistics facilities in Senai Airport City.

In August 2023, Tiong Nam completed the construction of a 1.1 million sq ft mega-warehouse facility in Senai Airport City and leased it to Mercedes-Benz. The facility known as the Regional Logistics Centre Malaysia (RLCM) is a key component of the German luxury automaker’s logistics network for the distribution of spare parts, accessories and workshop tools.

The warehouse was built at a cost of RM200 million. Tiong Nam is now constructing the second phase of the warehouse for Mercedes-Benz’s usage, says Victor. The 378,000 sq ft phase is expected to be completed in 2027.

The leasing arrangement with Mercedes-Benz is a long-term build-to-suit agreement and does not include logistics services. “We are just the landlord. We rent the facility [out]; we don’t provide logistics services to this client,” clarifies Victor.

News of Tiong Nam’s planned warehouse REIT listing first emerged in 2015 but nothing has materialised yet. One of the speculated reasons for the delay is the question of valuation.

While he did not confirm a specific timeline for launching a REIT, Victor says the group is preparing the asset base to meet the necessary size and income requirements.

“When we feel it’s big enough … it will happen,” he says, alluding to the need for critical scale. “Our current warehouses [held as investment property] can go above 2.5 million [sq ft] easily.”

The group sees strong tenant demand in southern Johor, particularly from Chinese investors and global manufacturers repositioning in response to shifts in the supply chain. “They are asking for very big space — at least 100,000 to 300,000 sq ft,” says Victor.

Tiong Nam’s ongoing capacity expansion is poised to increase its total warehousing capacity to 11.1 million sq ft by FY2028 from 9.6 million sq ft as at March 31, 2025, with nine new warehouses expected to come online.

According to its FY2024 annual report, Tiong Nam operates 97 warehouses and distribution centres in Malaysia, Singapore and Laos, with a total warehousing capacity of 7.7 million sq ft as at March 31, 2024.

The group has invested about RM1 billion in investment properties and property, plant and equipment over the last three financial years. As a result, the value of the investment properties in its balance sheet increased to RM1.22 billion in FY2025 from RM603.73 million in FY2023.

During the same period, its total loans and borrowings increased from RM1.3 billion to RM1.76 billion. This resulted in its net gearing ratio rising from 1.4 times at end-FY2023 to 1.64 times in FY2025.

With rising debts (totalling RM1.76 billion as at March 31, 2025) — and the fact that Tiong Nam’s cash and bank balances stood at only RM7.36 million — the group might not have the luxury of time to hold off its REIT plan.

Furthermore, a low interest rate environment could be more conducive for a REIT listing as this would boost the value of its assets while adding to its appeal as a dividend-yielding investment.

To its credit, Tiong Nam’s investments over the last three financial years had enabled its net profit to grow, from just RM5.1 million in FY2022 to RM41.5 million in FY2025.

Its earnings before interest, taxes, depreciation and amortisation (Ebitda) had also grown to RM190.88 million in FY2025, compared with RM120.25 million in FY2022, even as its finance costs almost doubled to RM77.28 million from RM39.05 million during the period.

With Ebitda of RM190.88 million and finance costs of RM77.28 million, Tiong Nam’s interest cover stood at 2.5 times, which is still healthy, although lower than the over three times interest cover the group had in FY2022.

The RLCM warehouse’s valuation had increased to RM430 million as at March 2024. The huge fair value gain of RM87.12 million in FY2024 resulted in Tiong Nam’s profit before tax (PBT) surging to RM67.86 million during the year.

In contrast, the group registered a lower fair value gain of RM47 million in FY2025, which contributed to PBT of just RM32.03 million during the year.

Higher depreciation and amortisation as well as finance costs also ate into its profitability during the year.

Despite registering a 14.5% increase in revenue in FY2025, the PBT of Tiong Nam’s core logistics and warehousing segment declined 33.45% to RM45.82 million from RM68.86 million in FY2024. (The logistics and warehousing segment is the top revenue and PBT contributor to the group. Its other business segments are investments, property development and dormitory but only the investments segment registered profits in FY2025.)

The situation is not expected to improve during the current financial year.

For FY2026, Victor forecasts that Tiong Nam’s revenue could grow between 10% and 15%, with the logistics and warehousing segment seeing PBT of around RM40 million.

“[It is] very tough, logistics. It is always very thin profit margins. Recently, the government widened the scope of the SST (sales and service tax) to logistics as well, so we may have to pass on this cost to our customers,” says Victor.

Tiong Nam’s share price performance had been lacklustre over the past year, having lost 16.57% to close at 70.5 sen on July 8, valuing the group at RM372.1 million.

Its competitors Tasco Bhd (KL:TASCO) and Swift Haulage Bhd (KL:SWIFT) have also suffered weak share price performance over the last one year. Tasco lost 45.9% of its value to close at 49.5 sen on July 8 while Swift lost 23.6% to settle at 40.5 sen. 

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