Investment Highlights

• We initiate coverage on TASCO Bhd (TASCO) with a target price of RM2.81, which translates into a potential upside of 12.8% against current share price. On top of that, we expect a dividend yield of 2.6% in FY18 (6.5 sen per share). All in, investors shall expect a total return of 15.4%. TASCO offers logistics solutions covering air, sea and land transportations. It serves as a one-stop logistics center to handle domestic and international shipments for the customers.

• Well established with 40 years of experience. The Group was incorporated in 1974 and subsequently listed on the Main Market of Bursa Malaysia on 28 December 2007. TASCO is a subsidiary of Yusen Logistics Co. Ltd. (YLK), which in turn is a subsidiary of renowned Nippon Yusen Kabushiki Kaisha (NYK).

• Leverage on parents’ strengths. The Group is able to access to parent companies’ (NYK and YLK) resources especially under TASCO’s international logistics solutions which ride on Yusen logistics brand name. This enables TASCO to offer Air Freight services, Sea Freight services and Buyer Consolidation services that linked to global network with 514 locations and 22,554 employees worldwide. In addition, it renders lower credit default risk to the Group as the parents are act as counterparty agents.

• Domestic logistics solutions backed by wide network of logistics centers and in-house operation resources. TASCO boasts 21 logistics centers across Northern region, Central region, Southern region, East Malaysia and Singapore. In addition, TASCO operates a total of over 2.6m ft² (243k m2) of warehouse spaces, out of which over 2.3m ft² are selfowned. To support its land transportation operations, the Group possesses a fleet of Trucks (333), Forklift (69) and Trailer (639).
   
• Banking on potential growths in Malaysian economy and recovery of global economy. Global growth is projected to improve in 2017. This is well supported by the expansion of domestic demand in the advanced and emerging economies. As a highly open economy with well-diversified export products and markets, Malaysia stands to benefit from the better global growth prospects. Gross exports are expected to increase by 5.5% in 2017 (2016: 1.1%), while gross imports are expected to increase by 6.4% (2016: 1.9%).
• Tapping into cold chain logistics after acquiring one of the leading players locally, i.e. Gold Cold Transport Sdn Bhd (GC) and MILS Cold Chain Logistics Sdn Bhd (MILS) together with 6 parcels of land near Westports. Total capacity for both the acquisitions amount to 37,000 pallets space. In addition, with the acquisition of 174 refrigerator trucks under GC, it would transform TASCO into a full-fledged chilled and frozen food transporter. Thus, TASCO is able to generate synergies with these acquisitions and render more comprehensive of “One Stop” services. Meanwhile, the 6 parcel of lands in Westport could be utilized for the expansion of warehouse in the near future.

Earnings Outlook

• We expect revenue to grow by 23.7% yoy in FY18F and 5.7% in FY19F whilst PATAMI to increase by 41.2% yoy and 5% yoy respectively. The stellar growth in top lines and bottom lines are mainly boosted by the acquisition of GC and MILS which will be consolidated in FY18F, coupled with positive prospects of our economic growth and the recovery of global economy.

• Major risks: 1.) Higher fuel price, 2.) Change in government policy, 3.) Hiccup in performance due to loss of major customers, and 4.) Slowdown in domestic and overseas economy.

Valuation & Recommendation

• We are initiating coverage on TASCO with a BUY call and a target price of RM2.81, based on 13x FY2018F PER. Our target PE valuation is slightly higher than the average forward PE of its peers of 12.8x in view of its commanding position in the sector and at the range of upcycle forward PE. Overall, we are sanguine on its future growth following its venture into cold chain market. With this, TASCO is able to generate synergies across all of its divisions and provide integrated logistics services for its clients.

Source: JF Apex Securities Research - 29 Aug 2017