Results

• Tasco Berhad (Tasco) reported a PATAMI of RM4.1m in 2QFY20, which surged 51.9% yoy and tripled qoq. Meanwhile, revenue was flat, -0.2% yoy whilst increased marginally by +5.9% qoq.

• Result below expectations. 1HFY20 PATAMI of RM5.4m, - 30.8% yoy, is below ours and consensus expectations by meeting 36-38% of full year earnings estimates. This was mainly due to lower-than-expected margins achieved by the Group, particularly for the Cold Supply Chain segment (CSC) and Trucking division (Trucking) which are under the Domestic Business Solutions (DBS).

Comments

• Contract Logistic Division (CLD) underpinned 2QFY20 bottom line amid sluggish CSC. The stronger yoy and qoq performances of the Group for 2QFY20 was mainly driven by CLD (segmental PBT: +111.1% yoy and 40.7% qoq) pursuant to better showings posted by the Warehouse business and Haulage business with newly secured FMCG customer and improved warehouse occupancy in Southern Region coupled with transfer of Convenience Retail business to CSC division. Also, the lower non-operating expenses during this quarter as compared to a year ago and the preceding quarter further aided the bottom line of the Group. On the other hand, the performance of CSC remained lackluster (segmental PBT: -81.5% yoy and -61.5% qoq) as the segment was still affected by the loss-making Convenience Retail business and loss of a confectionery customer for Warehousing business.

• Air Freight Forwarding (A FF), CSC and Trucking weighed on 1HFY20 earnings. Tasco achieved lower 1HFY20 results mainly dragged down by weaker results under the AFF (segmental PBT: -38.1% yoy) and Trucking (LBT of RM2.7m against PBT of RM0.7m a year ago) as a result of lower gross margins pursuant to competitive environment. Meanwhile, the abovementioned loss-making Convenience Retail business, once again, further dented the Group’s overall earnings (segmental PBT: -69.0% yoy).

• Halal logistics support the way forward for regional expansion. Tasco is also keen to explore sea, land and air opportunities on the Halal CSC given our current position as the largest Halal warehouse operator and cold-chain logistics player in Malaysia. Moreover, Tasco has a very strategic location in West Port that can cater to both ambient and cold chain Halal activities. In fact, the Group is currently in negotiations with customers to develop additional facilities for them. With preparations for the 2020 Tokyo Olympics underway, there is ample opportunity for both Tasco and its parent company, Yusen to provide halal logistics support. The Group is working with governments, ports and other parties to explore best options in supporting local suppliers for the 2020 Olympics game and showcase their halal products to the world while reinforcing Malaysia’s reputation as an international halal hub.
• Downside risks for 2HFY20. Moving forward, the Group foresees to face some headwinds such as: a) rising operational costs (in particular the new minimum wages as well as the higher overtime threshold as announced in the recent Budget 2020); b) substantial interest costs (of which Tasco only expects the finance costs to start reducing significantly in FY21F); and c) more competitive environment for its traditional core businesses.

Earnings Outlook

• We slash our net profit forecast for FY20F by 35.2% to RM9.2m after lowering our margins assumptions for DBS (particularly the CSC and Trucking). However, we maintain our FY21F net earnings forecast of RM14.5m. The prospects of the Group are closely tied to the performance of the global and domestic economies, as the logistics industry is highly dependent on economic activity and international trade.

Valuation/Recommendation

• Maintain HOLD call on Tasco with an unchanged target price of RM1.10 which is pegged at 15.1x FY21F PE. Our neutral stance on the stock is premised on the Group’s uninspiring earnings outlook coupled with prevailing global economic and international trade headwinds.

Source: JF Apex Securities Research - 22 Nov 2019