Results

• Tasco Berhad (Tasco) posted an extraordinary net profit growth of +498.1% YoY to RM15.8m for its 1QFY22, but a lower QoQ growth of -3.3%.

• Profit beats expectations. The Group’s recorded much higher than our/consensus forecast which accounts for 38%/30% of our/consensus full year forecast of RM41.1m/RM 52.3m.

• Both International Business Solution (IBS) (PBT: RM8.5m) and Domestics Business Solutions (DBS) (PBT: RM14.4m) recorded YoY growths of +192.3% and +264.0% respectively mainly due to broad-based recovery of business activities.

• Lower QoQ IBS profit. IBS segment posted a decline of 16.4% profit compared to 4QFY21 (RM10.2m) due to reduction in spot shipments and temporary closure of business and production of a few major customers due to spiking in Covid19 cases in 1Q22 which caused profit of Air Freight Forwarding (AFF) division decline from RM8.3m to RM 6.2m (-24.7%).

• DBS segment remained stronger QoQ. DBS segment recorded better profit of RM14.4m which grew 15.3% against 4Q21 thanks to the increased profit of Contract Logistic Division (RM13.1m vs 4Q21:RM10.2m) mainly due to increased shipments from solar panel, E&E as well as the Group has a newly-secured food manufacturing customer.

Comments

• Surge of international sea freight rates drive performance of Ocean Freight Forwarding Division (OFF). Tasco’s OFF Division has recorded RM2.3m in current quarter which soared +592.1% YoY and +19.1% QoQ spurred by increasing sea freight rate which was driven by demand and supply of vessel space and containers. We expect the freight rates will remain high this year as demand continues to outstrip capacity and benefit the Group.

• Hypercold Logistic began contributing earnings. Tasco recorded RM0.3m share of profit of associate company in current quarter which surged +302.9% QoQ which was contributed by Hypercold in which the acquicition proposed by last quarter and completed in current quarter (16 June 2021).

• Potential to leverage on Integrated Logistic Services (ILS) tax incentives granted by government for expansion. Tasco has been granted approval from MIDA in last year to enjoy tax incentives for its expansion incurred within 5 years. Management has guided that the Group is strategizing to leverage on the incentives to increase their capacity in the near term.

• Poised to benefit from the strong export performance of Malaysia. In 1H2021, Malaysia recorded a +32.1% YoY growth in its export and we expect the full year export to rise 56.8% YoY, underpinned by robust external demand especially for the rubber and E&E products, bringing positive impact to the Group under their IBS segment.

• Cautiously optimistic of FY22 performance of Tasco. With the rebound of economic activity as well as the accelerated rollout of vaccination program worldwide and Malaysia, we believe it will spur the performance of the Group in International and Domestic businesses.
   
• Downside risk will be the interruption of operation as affected by the pandemic. In view of new mutant strains and the rising trend of confirmed cases worldwide as well as in Malaysia, we reckon that its end clients may not be able to operate in full scale.

Earnings Outlook

• We increase our FY22F and FY23F net profit to RM53.3M & RM54.3M from RM41.1m & RM42.9m respectively as we raise our forecasts on the revenue of AFF and OFF under its IBS & CLD under its DBS.

Valuation/Recommendation

• We maintain HOLD on Tasco with a lower target price of RM 1.13 (RM1.21 previously) after ascribing a lower PE multiple of 17x FY22F (from 23.5x) which is -0.5SD of its 3-year mean PE as we believe the current share price has factored in all the positives and QoQ growth might be tapered off moving forward.

Source: JF Apex Securities Research - 30 Jul 2021