Results

• Tasco Berhad (Tasco) posted RM420.8m revenue in 4QFY22 which was up +42.2% yoy but dropped 7.5% QoQ. The drop of QoQ revenue was mainly due to the decline of revenue, 12.6% qoq in International Business segment (IBS) as a result of lower shipment in 4Q21.

• Low base rendering growth in profit. The Group reported a record PATAMI of RM25m in 4QFY22, +183.5% QoQ and +74.2% YoY. The surge of profit was mainly due to an exceptional one-off expense amounted to RM15.9m incurred in 3QFY22.

• Profit above expectations due to recovery of freight surcharge. Tasco’s FY22 overall profit of RM65.3m was above our forecast, accounting for 112% of our full year forecast of RM58.5m mainly due to the recovery of freight surcharge costs on customers for US shipments.

• High base in 3QFY22 pulled down IBS sales in 4QFY22. The Group posted RM257.3m of revenue in the quarter, -12.6% qoq mainly due to the high base of seasonally higher shipments during year, i.e. 3QFY22. However, the profit of IBS increased by 8.5% qoq attributable to recovery of freight surcharge cost from customer for US shipments.

• Recovery of local economy marginally lifted QoQ revenue for Domestic Business segment (DBS) but bottom line dragged by high operational cost. DBS business improved 1.7% QoQ in revenue but dropped RM5.5m (-37.1%) qoq in PBT mainly due to higher operational cost pursuant to rising oil price, starting from February CY22.

Comments

• Shipment mode of customers started switching to sea mode. Shipment preference of customers has slowly started changing back to sea freight as the ease of port congestion leads to lower transit time coupled with fluctuation of air freight charges. In coming periods, we do expect some portions of revenue in Air Freight Forwarding (AFF) will be swhifted to Ocean Freight Forwarding (OFF).

• Warehouse expansion on track. The Group has started their expansion plan in Shah Alam Logistic Centre (SALC) with rebuild a modern 4-storey warehouse approximately 650k sqft warehouse space by creating a net increase of 470k sqft of warehouse space from the demolishing on the old single storey warehouse. The rebuild is expected to complete by end CY2023. In the meantime, Tasco plans to embark on Phase 2 to build another 500k sqft warehouse space next financial year (FY). The expansion is due to strong demand and better rate of warehouse services.

• Impact of Integrated Logistic Service (ILS) tax incentives awarded by government will be shown in the next 5 years. Tasco is leveraging on the tax incentives to assist on the expansion of logistic capacity and its bottom line is expected to benefit from the lower effective tax rate in the next 5 FYs.

• Expecting ocean freight rates will gradually normalise moving forward. We estimate the existing steep ocean freight rate will be corrected moving forward in CY22 compared to the peak in CY21 on the back of increased supply of global fleet and the recovery of economic activities due to the diminishing of global concerns on Covid-19. Nonetheless, the impact of reduction of freight rates will be offset by the increase of business volume underpinned by the reopening of borders and resumption of business activities.

• Outlook continued to be driven by strong external trade and positive domestic economy. The prospects of the Group is in line with the industry’s promising outlook in the era of post-pandemic. Logistic business thrives on local economic activities and external trade as Bank Negara Malaysia (BNM) expects 10.9% and 8.1% YoY growth in respective Malaysian export and import for this year.

• Geopolitical risk dragged the positive momentum of the logistic prospects. The global sanction on Russia and zero-covid strategy adopted in China have prompted slower world economic activities and disrupted global supply chain. In the meantime, the tightening monetary policies in many countries as a results of inflationary pressure may slow down the economic activities moving forward. The elevated oil price could also negatively affect the profit margin of logistic players.

Earnings Outlook

• We raise our FY23F net profit to RM66.3m (from RM57.3m), +1.5% yoy growth as we lift our IBS margin forecasts on the back of slower-than-expected tapering of international freight rate. Also, we introduce our FY24F net earnings forecast of RM66.4m, +0.3% yoy growth with anticipated positive earnings contribution from the completed warehouse expansion in CY2023 amid tapering of international freight rate.

Valuation/Recommendation

• We maintain HOLD on Tasco with a higher target price of RM 1.23 (RM1.12 previously) as we raise our earnings forecast on FY23F.

• Our target price is now ascribed an PE multiple of 15x (which is -1SD of its 3-year mean PE) on Tasco’s FY23F EPS of 8.3 sen as we believe the current share price has factored in all the positives and taking into consideration of all the downside risks mentioned above.

Source: JF Apex Securities Research - 29 Apr 2022