Results

• Tasco Berhad (Tasco) posted a net profit of RM11.6m, in its 3QFY21 result, soaring 197.4% yoy and 8.4% qoq. Overall, the Group achieved a 9MFY21 net earnings of RM24.9m, which surged 167.7% yoy.

• Result within expectation. The Group’s performance is in line with our estimate which accounts for 74% of full year forecast but slightly below consensus (69%).

Comments

• Strong growths in Ocean Freight Forwarding (OFF) and Contract Logistics (CL) propelled qoq result. OFF posted commendable performance as the segmental revenue and PBT rose 16.7% and 120.0% respectively thanks to increased revenue contributed from premium sea freight rates (arising from container shortage resulted in revenue rebound of the segment, mainly driven by office equipment, E&E, musical instrument customers and newly secured hypermarket/retail and limestone manufacturer customers) and higher profit margin. Meanwhile, CL’s PBT surged 82.9% amid revenue declined marginally by -3.3% mainly driven by Haulage and Warehouse business. Drop in CL’s revenue was due to temporary production closure of its major customers due to Covid-19 infection cases. Notably, the Trucking division returned to loss for this quarter, -RM2.6m from PBT of RM2.3m in the previous quarter mainly dragged down by rising outsourced operating costs and fleet maintenance expenses.

• Better yoy performance underpinned by stellar growths in Air Freight Forwarding (AFF) and Cold Supply Chain (CSC). For 3Q and 9M performances, the stronger yoy was mainly driven by AFF (3QFY21 revenue: +101.9%, PBT: +241.2%; and 9MFY21 revenue: +73.6%, PBT: +232.6%) on newly secured tender business of a E&E customer, high airfreight rates due to reduced airfreight supply capacity amid Covid-19 pandemic coupled with customers switching shipments from sea mode to air mode as a result of global sea container shortage and shippers rushing to ship out urgent and backlog shipments on foreseeable partial lockdown. On the other hand, the better showings by the CSC (3QFY21 revenue: +7.0%, PBT: +250.0%; and 9MFY21 revenue: +7.9%, PBT: +216.7%) was due to newly secured customers and increased handling volume of existing customers under convenience retail business especially during this quarter.

• Sustainable performances for AFF and OFF. Going forward, Taco expects its International Business Solutions (IBS) (in particular the AFF division) to be resilient during the pandemic as demands for airfreight and sea freight services outstripped industry supply resulting in significantly higher airfreight and sea freight rates. The Group feels that its IBS will be able to sustain its performance well into CY2021. As for its Domestic Business Solutions (DBS), both CL and CSC divisions have performed well since the lifting of the MCO in last year.
   
• Bidding for local transportation of vaccine. We understand that the Group is bidding for the transportation of Pfizer Malaysia’s Covid-19 vaccine to public hospitals at this stage. As opposed to earlier speculation, no cold chain warehousing is required for the storage of vaccine as government hospitals will buy more freezers for storage. Should Tasco successfully secure the tender, this will benefit its Trucking Division to a certain extent. We reckon that the impact could be moderate as the segment traditionally renders thin margin, probably less than 3%.
   
• Last-mile logistics plan is still at preliminary stage. We understand from the management that the plan is still at exploratory stage. To recap, Tasco and GDEX entered into a non-binding memorandum of understanding (MoU) to lay the groundwork for more comprehensive cooperation ahead. Under the MoU, Tasco will be given priority to leverage GDEX’s last-mile fulfilment capabilities, while GDEX can tap Tasco’s international logistics network as well as its local cold supply chain infrastructure and convenience retail logistics network. Should the deal materialise, this will allow Tasco to venture into E-commerce by capitalizing on prevailing online shopping trend. Having said that, we deem the plan is strategic rather than short-term earnings accretive given the competitive landscape in the last-mile logistics segment as it is a volume game.

Earnings Outlook

• We raise our FY21F and FY22F net earnings forecasts marginally by 3.3% and 4.8% to RM34.7m and RM41.1m respectively after lifting our revenue estimates for both AFF and OFF.

Valuation/Recommendation

• Downgrade to HOLD from BUY on Tasco with a higher target price of RM3.70 (RM2.52 previously) after our earnings revision and roll over the valuation to FY22F, ascribing a higher PE multiple of 18x (from 15x) which is above its +1SD. The upcycle PE applied is to factor in: 1) current supply disruptions on air and ocean freights which result in higher freight rates as well as better business volume for its CL as customers eager to increase their stock levels on the back of partial economic shutdown worldwide; 2) potential earnings upside from the Investment Tax Allowance (ITA) which would render lower effective tax rates to the Group (savings from lower tax payments are estimated at RM60m for the next six to seven financial years or equivalent to RM8-10m/p.a with RM400m capex for the next 5 years for capacity expansion); and 3) possibility of benefiting from the Covid-19 vaccine logistics (albeit at a moderate impact to the Group’s bottom line in the immediate term, we believe).

• Positives priced in. While we favour Tasco for its commanding position in local logistic industry which offers integrated services as well as its niche expertise in food retail logistics on top of the abovementioned catalysts, we opine that the share price has priced in the positives and valuation looks stretchy at this junction.

Source: JF Apex Securities Research - 29 Jan 2021