Results

• Tasco Bhd (TASCO) reported a net profit of RM9.2m in 2QFY18 which improved 29.3% qoq and 12.6% yoy.

• Cumulatively, 6MFY18 net profit increased to RM16.3m from RM14.2m in 6MFY17 (+14.5% yoy), underpinned by a top line growth of 25.6% yoy. The encouraging performance was mainly attributed to growth in both International and Domestic business solutions but partly mitigated by higher expenses. The higher expenses (both finance costs of funding, professional and compliance expenses) were due to corporate merger & acquisition exercise of Gold Cold Transport Sdn Bhd.

• Below expectations. 6MFY18’s net profit below our and consensus expectation by matching 37.4% and 38.1% of full year earnings estimates respectively mainly due to higher finance costs and lower-than-expected margin for Cold Supply Chain division.

Comments

• Ocean Freight Forwarding (OFF) division recorded a PBT growth in 2QFY18, +46.9% qoq and 19.4% yoy. Favorable performance in OFF was underpinned by higher container volume (from solar panel customer, aerospace customer, industrial and consumer goods, import shipments for office equipment and lighting coupled with musical instrument). On the same note, OFF division 6MFY18’s PBT increased by 38.4% yoy.
• Air Freight Forwarding (AFF) division’s 2QFY18 PBT tumbled on quarterly basis (-25.6% qoq) but soared on yearly basis (+54.3%). On qoq, negative growth was due to drop in export shipments to Japan. Meanwhile, on yoy, growth was supported by increase in export shipments of capacitor customers. Nevertheless, AFF 6MFY18’s PBT almost doubled to RM2.4m.
• As such, International Business Solutions (IBS) 2QFY18’s PBT increased by 20.7% qoq and +25.8% yoy to RM4.6m, mainly lifted by OFF division. Cumulatively, IBS 6MFY18’s PBT +50.3% yoy which contributed 39.5% to the group’s 6MFY18 PBT.
• Contract Logistics (CL) Division remained the biggest contributor to the group with CL division’s 2QFY18 PBT up 33.2% qoq and 39.7% yoy to RM9.2m. The performance in CL division was mainly lifted by warehouse and in-plant warehouse business in view of the newly secured E&E customer in central region and regional distribution centre business of a semiconductor customer. Similarly, CL’s 6MFY18 PBT increased by 21.7% yoy.
• Domestic Business Solutions’ (DBS) 2QFY18 PBT surged 55% qoq and 45.9% yoy, boosted by CL division coupled with contribution from Cold Supply Chain (CSC) division. The completion of the acquisition of 100% share equity of Gold Cold Transport Sdn Bhd on 12 July 2017 has started to contribute positively to the group with a PBT of RM1.3m under CSC division in 2QFY18. However, price hike in fuel and operating costs have resulted in dip in Trucking division with net loss of RM0.9m in 2QFY18. All in, DBS’ 6MFY18 PBT up 28.3% which contributed 60.5% to the group’s 6MFY18 PBT.
• Looking forward, we believe Tasco to continue its growth trajectory, backed by strong GDP growth in Malaysia (2017: 5.4%, 2018: 5.0%) and a projected global growth by IMF of 3.6% in 2017 and 3.7% in 2018. Nevertheless, the acquisition of MILDS Cold Chain Sdn Bhd is still incomplete and pending approval from the relevant authorities.

Earnings Outlook

• We tweak down our earnings forecasts for FY18 and FY19 by 9-12% to reflect higher finance costs and lower than-expected margin in CSC division.

• 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

• Maintain BUY call for TASCO with a lower target price of RM2.69 (from RM 2.81) as we revised down our earnings forecast. We also roll over our valuation to FY19 by pegging at 13x PE. 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 - 17 Nov 2017