Results

Tasco Berhad (Tasco) posted a remarkable QoQ and YoY revenue growths in 3QFY22 of +44.2% and +87.5% respectively mainly due to the elevated freight rate in International Business segment (IBS) and the recovery of business activities in Domestic Business Segment (DBS).

One-off expenses dragged profit. The Group recorded RM8.8m PATAMI in this quarter, -43.8% QoQ and -24% YoY. The contrast between the revenue and profit was mainly due to the Group registered an exceptional one-off expenses amounted to RM15.9m, consisting primarily write off of a warehouse building which was demolished to reconstruction of 4 storey modern warehouse (which was necessitated as part of the expansion plan and some write off of damaged PPE hit by the flood in Shah Alam on Dec 2021).

Profit misses expectations due to one-off expenses. Tasco’s 9MFY22 profit is below our/consensus forecast which accounts for 69%/68% of our/consensus full year forecast of RM 58.5m/RM 59.6m mainly due to the above mentioned one-off expenses. However, we are still keeping our forecast on the back of high freight rate and strong demand spurred by the CNY festival.

IBS business benefitted from the recovery and supply disruption. Recovery and resumption of business from temporary closure of major customers, gradual reopening of international border and elevated freight charge resulted in IBS business surging 86.9% QoQ in revenue and 75.2% QoQ in PBT.

Reopening of economy post-MCO boosted domestic and export activities, resulting in improved performance of DBS. DBS business improved 1.7% QoQ in revenue and 11.2% in PBT.

Comments

Supply chain disruption continued to benefit AFF (Air Freight Forwarding) division…... The surging of ocean freight rates coupled with container shortage and port congestion which had increased the transit time prompted Tasco’s customers switching from sea cargo mode to air cargo mode. The Group’s AFF division recorded a +54% QoQ in PBT mainly due to the higher freight rate and strong business support from the customers of automotive, aerospace, semiconductor and electrical components.

…… and OFF (Ocean Freight Forwarding) division. The soaring sea freight resulted in double-fold of revenue and +188.6% QoQ in PBT for OFF division. The main contributor of customers to the growth of OFF division in 3Q22 were solar panel, glass manufacturing, F&B, aerospace, aluminium and healthcare.

Warehouse expansion stemming from strong demand and elevated warehouse rates. The changing behaviour of businesses looking to keep more inventories due to the supply chain uncertainty has brought up the demand of warehouse space and the rates psq, and the trend looks set to continue in CY2022. The rates of warehouse space of the Group has surged 20%-30% since 2019. Tasco has allocated RM400m to RM500m CAPEX over the next 5 years for the warehouse expansion in Shah Alam in order to further expand their warehouse business.

Expecting freight rates will gradually normalise moving forward but the momentum may be offset by the reopening of global economy. The air and ocean freight rates have surged four-fold more than pre-pandemic level due to the supply chain disruptions and we are expecting the freight charges will gradually taper off in CY2022 as the Baltic Dry index has returned to pre-pandemic level recently. Nonetheless, the impact of reduction of freight rates to business of Tasco will be easing, cushioned by the increase of business volume underpinned by the reopening of global economy.

Minimal impact by the floods occurred in Dec 2021. According to the management of Tasco, the Group faced some disruptions such as manpower shortages, power outages during the floods but only lasted a few days and Tasco is now able to catch up on the backlog orders.

Continued downside risks to drag logistic industry performance. The global economy enters CY2022 in a weaker-than-expected mode as the new Omicron variant spreads widely. Some countries even has reimposed the mobility restrictions. Moreover, the elevated Brent crude oil and energy prices, prolonged supply chain disruption and shortage of manpower have continued to pose downside risks to Tasco moving forward.

Earnings Outlook

We keep our FY22F and FY23F net profit of RM58.9M and RM57.3M respectively on the back of elevated freight rate and strong demand spurred by the CNY festival in 4QFY22.

Valuation/Recommendation

We maintain HOLD on Tasco with a lower target price of RM 1.12 (RM1.25 previously) as ascribing a lower PE multiple of 15.5x (17x previously) which is -1SD of its 3-year mean PE as we believe the current share price has factored in all the positives whilst taking consideration of the lingering risks as mentioned above.

Source: JF Apex Securities Research - 28 Jan 2022