Results

• Tasco Bhd (TASCO) reported a net profit of RM5.1m in 4QFY18 which tumbled 38.2% qoq and 32.5% yoy as revenue down 11.6% qoq but up 15% yoy.

• Unfavourable QoQ performance was attributed to seasonal lower revenue in 4Q with both International Business Solutions (IBS) and Domestic Business Solutions (DBS) registered negative revenue growth QoQ coupled with higher tax expenses.

• Lacklustre YoY performance was bogged down by higher finance costs despite higher revenue.

• Cumulatively, 12MFY18 net profit slid 3.9% yoy to RM29.7m despite surge in revenue of 21.5% yoy. Better revenue was a result of growths in both IBS and BDS that further lifted by Cold Supply Chain (CSC) division’s contribution (about 8 months revenue recognition for FY18). However, earnings was eroded by elevated finance costs in view of the borrowing incurred for Cold Supply Chain acquisition, coupled with increased professional and compliance expenses for corporate merger & acquisition exercise.

• Within expectations. 12MFY18’s net profit within our expectation but below consensus by matching 97.6% and 89.2% of full year earnings estimates respectively.

Comments

• Both IBS and DBS registered lower QoQ revenue but DBS posted higher PBT. IBS’s 4QFY18 PBT tumbled 43.6% qoq as revenue decreased 14.4% qoq as well as lower PBT margin achieved in Air Freight Forwarding division. Meanwhile, DBS’ PBT surged 32.7% qoq despite revenue dropped 9.9% qoq, thanks to higher margin achieved in Contract Logistics Division.

• Weaker YoY performance for IBS but better YoY performance for DBS in 4QFY18. Unfavourable IBS performance was a result of lower revenue (-15.2% yoy) and lower margin. As such, IBS’ PBT down 59.4% yoy. Meanwhile, DBS performance was mainly lifted by recognized CSC business segment and better margin posted in Contract logistics division.

• IBS posted higher revenue (+5.7% yoy) but lower PBT (-12.7% yoy) for 12MFY18. Higher revenue was backed by higher sales in both Air and Ocean Freight Forwarding divisions but dragged down by lower margin in Ocean Freight forwarding in view of competitive freight rates as well as surcharges.
• 12MFY18 DBS performance boosted by Contract logistic division and contribution from CSC division. DBS PBT surged 74.1% yoy, underpinned by 34.4% yoy increase in revenue. Higher revenue was a result of higher revenue registered in Contract logistic division (+20.8%) and RM61.4m revenue contribution from CSC division.
• Contribution from CSC division to be fully recognised in FY19. Looking forward, we envisage Tasco to fully recognise its CSC business segment in FY19 with an estimated revenue of c.RM100m. As such, we believe CSC division is able to contribute PBT of RM10-12m to Tasco in FY19.
• Possibly obtaining approval on Investment Tax Allowance (ITA) – We understand that Tasco is in the midst of applying for an Investment Tax Allowance. If Tasco successfully secures the approval, we foresee a tax saving of RM15-20m and probably recognise it as early as FY19F. To recap, Tasco recognised such tax allowance in FY2011 with a tax saving of RM3.9m, which translated into an effective tax rate of 14.6% (vs statutory tax rate of 25%). In addition, we also understand that total ITA claimed by Tasco during FY2003 to FY2007 was RM21m.

• Looking forward, we believe Tasco to continue its growth trajectory, backed by strong GDP growth in Malaysia for this year with our in-house forecast of 5.3% and IMF’s projected global growth of 3.9% for 2018 and 2019.

• Declared single-tied dividend of 2.5 sen with entitlement date and payment date yet to be determined. As such, total dividend for FY18 will be 4.5 sen, which translates into a dividend yield of 2.3% based on current share price.

Earnings Outlook

• We keep our earnings forecast unchanged for FY19 and FY20.

• 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 an unchanged target price of RM2.49. We pegged our valuation at PE of 13x FY19F EPS. 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. Furthermore, the soon-to-be-launched trading business (by YLTC Sdn Bhd, a 60:40 JV between Yee Lee Corporation Bhd and Tasco Bhd) will create further synergy to its existing businesses such as

Source: JF Apex Securities Research - 25 May 2018