Results

• Tasco Bhd (TASCO) reported a net profit of RM5.2m in 1QFY19 which inched up 1.3% qoq but slid 27.3% yoy with revenue growth of 7.2% qoq and 15.7% yoy.

• Better QoQ performance was a result of better International Business Solutions (IBS) and lower corporate costs that offset lacklustre earnings in Domestic Business Solutions (DBS).

• However, unfavourable YoY performance was bogged down by lower earnings in IBS and higher corporate costs despite a better performance in DBS.

• Below expectations. 3MFY19’s net profit below ours and consensus expectation by matching 13.6% and 13.1% of full year earnings estimates respectively. The uninspiring performance was mainly due to a loss in Ocean Freight Forwarding (OFF) division and occurrence of pre-operating expenses for newly secured consumer retailing business under Contract Logistics (CL) Division.

Comments

• OFF division suffered lower revenue and made a loss in 1QFY19. Meanwhile, Air Freight forwarding (AFF) division recorded better performance in view of higher margin. Overall, 1QFY19 IBS’s PBT up 20.1% qoq but down 56.5% yoy to RM1.7m. Lower revenue in OFF was due to shipments dropped in Electronic & Electrical customers.

• Contract logistics division’s revenue continued growth but PBT bogged down by occurrence of pre-operating expenses in 1QFY19. Revenue growth 15.8% qoq and 26.3% yoy to RM79.8m but PBT tumbled 54.2% qoq and 26.3% yoy to RM5.1m.

• Cold Supply Chain (CSC) division posted a steady performance. CSC recorded revenue of RM21.2m, which inched down 3.5% qoq in 1QFY19. Similarly, PBT edged down 4.2% qoq to RM3.1m.

• Cost-down measures bear fruit in Trucking division. Trucking division registered PBT of RM0.7m in 1QFY19 as compared to RM0.4m in last quarter (4QFY18) and a loss of RM0.7m in 1QFY18. This was attributable to continuous cost cutting measures taken by Tasco. As such, DBS posted a higher revenue of RM121.5m (+11.7% qoq and 41.3% yoy) with a PBT of RM8.9m (-39.6% qoq and +43.6% yoy).
• CSC business 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.
• Possible to obtain approval on Investment Tax Allowance (ITA) – We understand that Tasco is in the midst of applying for an Investment Tax Allowance. If Tasco is able to secure the approval, we foresee a tax savings of RM15-20m and probably recognising as early as this financial year, i.e. FY2019F. To recap, Tasco had 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 2003 to 2007 was RM21m.

• Looking forward, we believe Tasco could sustain its growth trajectory, backed by resilient GDP growth in Malaysia (our in-house 2018 forecast: 5.3%) and a projected global growth of 3.9% by IMF for 2018.

Earnings Outlook

• We keep our earnings forecast unchanged for FY19 and FY20 as we believe TASCO’s net profit is able to pick up in coming quarters.

• 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 RM1.96 (previously was RM2.49). We peg our valuation at PER of 10.3x FY19F EPS. We lower down our target PE valuation in view of its low liquidity of the stocks. Nevertheless, ascribed PER is at +0.5x SD above its historical average trailing 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 Cold Chain and Contract Logistics.

Source: JF Apex Securities Research - 17 Aug 2018