What’s New

• Tasco announced that YLTC Sdn Bhd (a 60:40 JV between Yee Lee Corporation Bhd and Tasco Bhd) had entered into a purchase contract with Shell Malaysia Trading Sdn BHd.

• YLTC Sdn Bhd will be appointed as Shell’s contractor for the provision of supply chain services to the Shell Convenience Retail Outlets throughout Peninsula Malaysia.

• Contract’s effective date is on 1st October 2018 and lasts for 3 years, ending on 30th September 2021 and subject to extension for another 2 years.

Comments

• Roll-out earlier than expected. To recap, we only expect the project to roll-out in 4QFY19 in view of pre-system setting requires across 600+ Shell’s Select Shops. Nevertheless, according to the announcement, effective date of the contract is on 1st Oct 2018 (3QFY19). As such, the project has been expedited by one quarter earlier.

• Tasco expects to benefit from the JV co. (profit to be recognized under associate level) … Profit from YLTC Sdn Bhd will be reflected under Tasco’s account (associate level). Meanwhile, YLTC Sdn Bhd will outsource contract logistics services portion (both dry and cold chain warehouse spaces, and trucking) to Tasco on arm’s length basis. Based on our preliminary estimates, Tasco could record a yearly profit of c.RM1.5m under associate level if the project runs in full swing.

• … and Contract Logistics business – At the same time, it will contribute total revenue of RM32m-RM50m (assuming 9- 14% logistics related costs to sales) for Contract Logistics business, which translates into a PBT of RM2.2m-RM3.5m (assuming a blended PBT margin of 7%).

• Trading business could further propel growth in the long run – Should this pilot project roll-out smoothly, it could easily be replicated and target for other potential clients with similar businesses and outlets. As mentioned earlier, Tasco’s Contract Logistics Division is expected to benefit substantially from YLTC in the longer term.

Earnings Outlook

• We tweak up our earnings forecast for FY19F by 0.5% to account for earlier-than-expcted roll-out of the project. Meanwhile, we retain our earnings forecast for FY20F.

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

Valuation/Recommendation

• Maintain BUY call for Tasco with a slightly higher target price of RM1.97 (previously was RM1.96) following our earnings adjustment. We peg our valuation at PER of 10.3x FY19F EPS with ascribed PER at +0.5x SD above its historical average trailing PE.

• Overall, we are sanguine on its future growth following its earlier 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. Also, the business idea of trading business venture (jv with Yee Lee) and contract logistics business are expected to underpin Tasco’s overall growth momentum.

Source: JF Apex Securities Research - 14 Sept 2018