Results

• Tasco Berhad (Tasco) posted a flattish QoQ net profit growth of -0.5% to RM 15.7m for its 2QFY22 result. Meanwhile, it achieved a remarkable YoY growth of +46.6%.

• Profit higher than expectations. For 1HFY22, Tasco recorded net profit of RM31.5m, soaring 135.8% yoy, which accounts for 59%/56% of our/consensus full year forecast of RM53.3m/RM 56.6m mainly due to the higher than expectation of revenue in International Business solution (IBS) segment which reflecting the broad-based recovery of business activities amid the pandemic.

• Improved profit for International Business solution (IBS). IBS segment recorded RM11.5m PBT (+35% QoQ and +106% YoY). The profit surge in IBS was mainly due to the reopening of business from temporary closure for its major customers in 1QFY22.

• QoQ profit decline in Domestic Business solution (DBS). DBS segment posted 2QFY22 PBT of RM13.5m, - 6.2% QoQ but +8.2% YoY. There was a significant decline in the export shipments of major solar panel customers in current quarter which led to the revenue reduction of Contract Logistic (CL) division, particularly in custom clearance and haulage businesses.

• Dividend declared. The Group has declared a single-tier divided of 1 sen per share amounting to RM8m.

Comments

• QoQ decline in profit margin in Ocean Freight Forwarding (OFF) division amid global container shortages and port congestion. Tasco’s OFF division posted +14.7% QoQ growth in revenue but -21.6% QoQ down in PBT (-1.5 ppts drop in margin) due to the intensive competition of securing and retaining businesses.

• Elevated usage rate and throughput of Air Freight benefitting Tasco’s Air Freight Forwarding (AFF) division within IBS segment. The global container shortages and port congestion have lifted the ocean freight rate by more than 4x. The higher ocean freight rates and transit time have prompted the customers to ship their cargos from sea mode to air mode. Tasco has benefited from this as the revenue and profit of AFF have been increased by 36.3% and 55.9% qoq respectively in 2QFY22.

• Better Warehouse business performance underpinned by rising demand of warehouse space. The changing behaviour of businesses looking to keep more inventories on hand due to the supply chain uncertainty had brought up the demand of warehouse space. The warehouse business of Tasco in 2QFY22 recorded a PBT of RM7.8m (+12.8% QoQ). The Group targets to allocate bulk of its CAPEX over the next 5 years earmarked for warehouse expansion in Shah Alam, Selangor to further grow the business to cater the demand.

• Reopening of domestic economy set to boost Tasco’s performance further. The nearly full reopening of economy in Oct is expected to spur its business performance in 2HFY22 and FY23 with the customers of Tasco are envisaged to return to operation.

• Sustainable growth. With the Authorised Economic Operator (AEO) certification issued by the Royal Malaysian Customs Department, Tasco is now able to offer the benefits of priority customs clearance, lower rate of physical inspections of imported or exported goods, faster release of shipments, deferred payment of duties as well as enhanced security and improved risk mitigation. In additional to the lower effective tax rate from ILS tax incentive and RM400- 500m CAPEX spent over the next 5 years, Tasco is on track to achieve another sustainable topline growth.

Earnings Outlook

• We increase our FY22F and FY23F net profits to RM 58.9m & RM57.3m from RM53.3m & RM54.3m respectively as we raise our forecasts on the revenue of AFF and OFF under its IBS as well as the rental rate per sf for its warehouse business under the DBS.

Valuation/Recommendation

• We maintain HOLD on Tasco with a higher target price of RM 1.25 (RM1.13 previously) as we rollover our valuation to FY23 after ascribing a PE multiple of 17x. We believe current share price has factored in all the positives and the profit could taper off moving forward upon normalization of the freight charges.

Source: JF Apex Securities Research - 28 Oct 2021