Results

• Tasco Berhad (Tasco) reported a net loss of RM0.4m in 4QFY20, against net profit of RM2.1m in a year ago and RM3.9m in the previous quarter. The loss in this quarter was mainly due to surge in tax expense in relation to non-deductible expenses and underprovision of prior years’ tax expenses amid 4QFY20 PBT increased 74.4% yoy and 11.5% qoq.

• Result significantly below expectations. Overall, the Group recorded FY20 net profit of RM8.9m, which tumbled 31.5% yoy. The result is substantially below ours and consensus expectations by meeting 70-77% of full year earnings estimates. As mentioned earlier, this was mainly due to unexpected higher tax expense incurred in this quarter.

Comments

• Ocean Freight Forwarding (OFF) and Contract Logistics (CL) segments underpinned FY20 performance. If not the higher tax expense, Tasco could have achieved better result as PBT increased 9.6% yoy for FY20. Operationally, the Group achieved better showings in its International Business Solution (IBS) (segmental PBT: +6.0% yoy) driven by its turnaround of OFF division (FY20 PBT: RM1.6m vs FY19 LBT: RM3.5m) on the back of higher topline (+30.8% yoy). For this segment, Tasco saw an increase in export shipments for solar panel, aerospace and newly secured medical devices, healthcare and paper products customers. Also, the Group’s CL division under Domestic Business Solutions (DBS) posted stronger PBT, +70.3% yoy, further strengthening the Group’s overall bottomline. The CL segment was mainly contributed by Warehouse and Haulage businesses.

• In a recovery mode. We reckon that the Group’s operational performance has improved during the past three quarters of FY20 (rising PBT qoq - 1Q:RM1.9m vs 2Q: RM5.7m vs 3Q: RM6.1m vs 4Q: RM6.8m). Moving into FY21F, Tasco foresees its topline and bottomline to improve further as it is relatively unfazed by the movement control order (MCO). The Group is allowed to operate as usual since logistic business has been considered as essential service. Moreover, its Cold Chain Logistics (which currently deals mainly in F&B) as well as Convenience Retail Logistics (including pharmaceutical retail) have proven to be strategic as demand for these sectors has remained resilient during the MCO. Going forward, demand for logistics is expected to pick up as the country is easing restrictions on businesses under Recovery MCO. However, the Group is still mindful of rising operational costs amid prevailing economic uncertainty as its business is highly associated with domestic economic activities and international trade.
• Proposed dividend of 2.0 sen/share. Tasco has declared a dividend of 2.0 sen/share for its FY20 which is lower than 2.5 sen/share declared in FY19.
• Operational challenges include: a) rising costs, as new minimum wages which came into effect on 1 Feb 2020, and higher salary threshold for overtime entitlements to RM4k which was announced in Budget 2020; and b) more competitive environment for its traditional core businesses.

Earnings Outlook

• We slash our net profit forecast for FY21F by 15.3% to RM15.5m following our margins reductions for its Air Freight Forwarding (AFF), Cold Supply Chain (CSC) and Trucking divisions. We also take this opportunity to introduce our FY22F net earnings of RM16.0m.

Valuation/Recommendation

• Maintain HOLD on Tasco with a lower target price of RM0.93 (previously RM1.10) following our earnings cut. The revised target price is still pegged at 12x FY21F PE. Although we reckon that Tasco’s financial result is improving, we are of the view that its business outlook is still challenging given current political and economic uncertainties coupled with negative impact from the pandemic on global business activities.

Source: JF Apex Securities Research - 19 Jun 2020