Results

• Tasco Bhd (TASCO) reported a net profit of RM8.2m in 3QFY18 which was down by 10.3% qoq and 8.9% yoy. Meanwhile, revenue edged down 0.2% qoq but improved 20.4% yoy.

• Cumulatively, 9MFY18 net profit increased to RM24.6m from RM23.3m in 9MFY17 (+5.4% yoy) with a top line growth of 23.7% yoy. The insipid performance was mainly bogged down by additional support expenses despite a growth in domestic business solutions divisions. The higher expenses reduced PBT by RM7.1m given additional costs from support segment (extra finance costs of funding, professional and compliance expenses in view of corporate merger & acquisition exercise of Gold Cold Transport Sdn Bhd).

• Below expectations. 9MFY18’s net profit below our and consensus expectation by matching 64.7% and 65.9% of full year earnings estimates respectively as affected by higher support expenses.

Comments

• International Business Solutions’ (IBS) 3QFY18 PBT slid QoQ and YoY in view of contraction in margin. IBS’s 3QFY18 PBT tumbled 46.8% qoq and 51.2% yoy to RM2.5m in view of lower margin recorded, especially for Ocean Freight forwarding (OFF) division (-5.6pts qoq and 7.6 pts yoy to 5.6%). Low margin was a result of competitive freight rates and surcharges.
• Meanwhile, IBS’s 9MFY18 PBT inched up 2.3% yoy to RM10.9m. Better performance in IBS’s 9MFY18 PBT was back by higher revenue (+13.6% to RM130.8m) in 9MFY18. Air Freight Forwarding (AFF) and OFF both registered revenue growth of 7.7% yoy and 23.8% yoy respectively but competitive freight rates and surcharges whittled PBT.
• Domestic Business Solutions’ (DBS) 3QFY18 PBT was lifted by better performance in Cold Supply Chain Division (CSCD) QoQ. DBS’s 3QFY18 PBT up 15.6% qoq to RM11.1m, underpinned by stronger performance in CSCD. CSCD’s 3QFY18 PBT doubled to RM2.7m from RM1.3m in 2QFY18 in view of higher revenue (+15.3% qoq) and better margin (+5.3 pts qoq).

• DBS’s 3QFY18 PBT surged 65.9% yoy in view of additional income from CSCD and better performance in Contract logistics division (CLD). The stellar performance was boosted by additional earnings kicked in from CSCD (RM2.7m) and higher PBT from CLD (+22.8% yoy to RM9.1m). Higher PBT in CLD was backed by higher earnings growth of 22.3% yoy.
• As such, DBS’s 9MFY18 PBT surged 41.5% to RM27m. The robust performance in DBS was buoyed by CLD and CSCD but partly mitigated by Truck division (TD). TD’s 9MFY18 losses before tax widened to RM2.2m from RM1.5m in 9MFY17 despite saw a revenue growth 6.1%. The unfavorable performance was mainly dragged down by increase in fuel price coupled with imbalance trips.
• Looking forward, we believe Tasco to continue its growth trajectory, backed by strong GDP growth in Malaysia (2018: 5.0%) and a projected global growth of 3.9% in 2018 by IMF.

• Declared single-tier interim dividend of 2 sen/share for 3Q. We expect final dividend of 2.75 sen/share to be declared in 4Q. As such, total dividend for FY18 is expected to be 4.75sen, which translate into a dividend yield of 2.4%.

Earnings Outlook

• We tweak down our earnings forecasts for FY18 and FY19 by 7-14% to reflect higher support expenses.

• 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 RM2.49 (from RM 2.69) as we revise down our earnings forecast. We peg our valuation at 13x FY19F 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 prospects 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 - 12 Feb 2018