Results

• Tasco Berhad (Tasco) clinched a 1QFY21 net profit of RM2.6m, which doubled yoy from a net profit of RM1.3m a year ago and returned from the net loss of RM0.4m in the immediate preceding quarter.

• Result broadly within expectations. Overall, we deem the Group’s performance is in line with our estimate and consensus despite 1QFY21 net earnings account for 17% of full year forecasts. To recap, the Group’s 1QFY20 net profit only accounted for 14% of its full year FY20 net earnings. Thus, we envisage Tasco to record stronger bottom line from 2QFY21 onwards to meet our full year estimate of RM15.5m.

Comments

• 1QFY21 driven by Air Freight Forwarding (AFF) and Cold Supply Chain (CSC) segments. The Group’s better yoy and qoq results were mainly underpinned by AFF under International Business Solutions and CSC under Domestic Business Solutions. A newly secured tender of an electronic customer, soaring market airfreight rates due to reduced airfreight supply capacity coupled with shippers rushing to ship out urgent and backlog shipments by switching from sea to air mode, since the country moved into the less restrictive phases of movement control order (MCO) drove the top line and bottom line of AFF division. Meanwhile, the better showing by CSC was mainly contributed by new grocery-store customer and dairy product customer during the period of MCO. Besides, the reduction in non-operating and general expenses from Support division, largely attributable to reduced finance costs and unrealized and realized forex gains resulting from the strengthening of MYR and cost control measures also contributed to the Group’s bottom line during this quarter.

• Back in business. Since the relaxation of the MCO, management guided that its logistics business has picked up significantly to pre-pandemic levels as its customers re started their operations and backlogs and pent-up demands are being fulfilled. Operationally, we have witnessed the quarterly improvements of the Group’s bottom line during FY20 with continuous rising of PBT (1Q: RM1.9m vs 2Q: RM5.7m vs 3Q: RM6.1m vs 4Q: RM6.8m).

• Strengthening Cold Chain Logistics (CCL)….. On CCL, the Group is focusing on expanding its footprint and growing its market share by exploring new tenders on the convenience retail front with several players. As management strengthens its offering and streamline its operations, the Group expects steady and extended contracts from its existing and new customers.

• …… and Convenience Retail Logistics (CRL) under CSC. Meanwhile, for its CRL, Tasco has plans to further expand its footprint into the southern region of Peninsular Malaysia by early 2021. Plans are in the offing for the Group to embrace automation within its operations, particularly on the retail front, in a more significant manner. Tasco is looking to implement state-of-the-art conveyance and sorter systems at its extended premises in Johor. This will go a long way in helping expand and strengthen the operations of one of its food retail customers. Also, the Group is looking to expand into the northern region which will complete its food retail logistics storage and state-of-the-art sorting operations and accord its ability to serve all of Peninsular Malaysia. This move is also expected to benefit the CCL as well. With more retail players joining the bandwagon and recognising the advantages of leveraging on Tasco’s unique offering, the Group anticipates that volume and ultimately profits for this business segment will remain resilient.

• Headwinds ahead. However, Tasco is still mindful of rising operational costs amid prevailing economic uncertainty as its business is highly associated with domestic economic activities and international trade. Moreover, the Group is being bothered by the competitive environment for its traditional core businesses, i.e. its International Business Solutions, Contract Logistics (CL) and Trucking divisions.

Earnings Outlook

• No change to our net earnings forecasts for FY21 of RM15.5m and FY22 of RM16.0m.

Valuation/Recommendation

• Maintain HOLD on Tasco with an unchanged target price of RM0.93. Our target price is 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 trade and business activities.

Source: JF Apex Securities Research - 27 Aug 2020