Results

• Tasco Berhad (Tasco) reported a PATAMI of RM3.9m in 3QFY20, which surged 25.8% yoy but dropped 4.9% qoq. Meanwhile, revenue increased marginally by 2.9% yoy whilst flat qoq, -0.3%.

• Result above expectations. 9MFY20 PATAMI of RM9.3m, - 14.7% yoy, exceeding ours and consensus expectations by meeting 90-100% of full year earnings estimates. This was mainly due to better-than-expected margins achieved by the Group, particularly for its Domestic Business Solutions (DBS).

Comments

• Stellar performance posted by Contract Logistic Division (CLD) amid lackluster Cold Supply Chain (CSC). The stronger yoy performance of the Group for 3QFY20 was mainly driven by CLD (segmental PBT: +120.0% yoy and PBT margin: +5.1ppt yoy) pursuant to better showings posted by the Warehouse business as a result of improved occupancy rate of a warehouse located in Port Tg Pelepas coupled with reorganization by transferring lossmaking Convenient Retail Business from Warehouse division to CSC division. Also, increase in revenue and profit turnaround of Ocean Freight Forwarding (OFF) stemming from rising shipments volume on aerospace, chemical, paper products manufacturing, solar panel and healthcare further aided the Group’s bottom line (segmental revenue: +20.3% yoy). On the other hand, the performance of CSC remained uninspiring (segmental PBT: -81.8% yoy and PBT margin: - 10.8ppt yoy) as the segment was still affected by the reorganization exercise with transferring of loss-making Convenience Retail business from Warehouse business. Moreover, widening loss in Trucking division during this quarter also bogged down the overall group’s earnings.

• 9MFY20 earnings dragged down by Air Freight Forwarding (AFF), CSC and Trucking divisions. Tasco achieved weaker 9MFY20 results no thanks to lower profits under the AFF (segmental PBT: -39.4% yoy) and Trucking (LBT of RM3.5m against PBT of RM0.1m a year ago) as a result of lower gross margins due to competitive environment. Meanwhile, the abovementioned loss-making Convenience Retail business, once again, further dented the Group’s overall earnings (segmental PBT: -73.6% yoy).
   
• Expecting steady 4QFY20F. Thus far, the Group has yet to see the significant impact of the coronavirus outbreak on its coming 4Q results. However, the management believes that profound impact shall be felt by the Group should there be any protracted and expansion of the outbreak. This is further exacerbated by the slowing domestic business activities pursuant to recent political uncertainty, we believe.

• Headwinds ahead. Moving forward, the Group foresees to face some downside risks such as: a) rising operational costs (new minimum wages which already came into effect on 1 Feb 2020, and higher salary threshold for overtime entitlements to RM4k which was announced in 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 lift our net profits forecasts for FY20F and FY21F by 40.2% and 26.2% to RM12.9m and RM18.3m respectively after increasing our margins assumptions for DBS, particularly the CLD.

Valuation/Recommendation

• Maintain HOLD call on Tasco with an unchanged target price of RM1.10 which is pegged at 12x FY21F PE. 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.

Source: JF Apex Securities Research - 28 Feb 2020