Results

• Tasco Berhad (Tasco) posted RM453.6m revenue in 1QFY23 which was up +56.4% yoy and +7.8% QoQ. The better performance of revenue was contributed by both International Business Segment (IBS) and Domestic Business Segment (DBS) underpinned by improving of global market demand and recovering of economic.

• Reduction in tax credit of investment tax caused lower QoQ in profit. The Group reported RM 24.4m PATAMI in the quarter which surged 55% but marginally dropped 2.2% QoQ mainly caused by lower tax credit comparing to previous quarter with higher effective tax rate (24% vs 4Q21:15%).

• Results beat expectations. Tasco’s 3MFY22 profit of RM 24.4m is deemed to above our/consensus forecast, accounting for 37%/33% of our/consensus full year forecast. The remarkable results was mainly due to the tapering of international freight rate which was slower than our expectation.

• Ease of containment measurement in Shanghai benefiting Air Freight Forwarding (AFF) division. Following Shanghai has gradually returning to normalcy from the lockdown, the overall market demand has improved. In addition to the recovery of economic activities, Tasco is benefitted by these and reported revenue grew 3.6% qoq and 106.1% yoy.

• Ocean Freight Forwarding （OFF） division marginally dropped qoq. The Group OFF division recorded a qoq revenue drop of 8.2% mainly caused by the reduced bookings dragged by tight vessel space and equipment and believed was mainly due to the global supply chain disruption and shortage of labour. Nevertheless, the PBT of the division surged 13.7% qoq.

• DBS segment’s qoq performance boosted by warehouse business. The Group DBS segment recorded a RM13.3m PBT which +40% qoq but -8.1% yoy. The better qoq performance was mainly due to the contribution of warehousing business which showed an increase of RM 2.9m (+56.1% qoq) in the quarter.

Comments

• Tapering of International freight rate is slower than expected. Despite the freight rate has fallen back marginally from the peak, but the extent is weaker than expectated and we understand that the rate is unlikely return to the level of pre-pandemic amid the prolonged supply chain disruption  and port congestion.

• DBS segment margin still struggling. The Group DBS segment reported a 6.9% PBT margin in the quarter which dropped 2.5ppts qoq and 1.7ppts yoy despite revenue is improving. The drop in margin mainly dragged by the Contract Logistic division which consists of the custom clearance and haulage business in which we believe was mainly due to higher operational cost amid environment of intense competition.

• 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 be completed 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.  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 continued posing risk for the IBS segment. The Russia sanction has dampened the global supply chain especially in Euro. This has curbed the positive momentum of the recovery of global economy and posed a downside risk to the Group’s IBS segment.

• Increase of cost posed challenges…... The industry has faced the challenges of high operation cost amid the increase of labor wages and high fuel prices which compressing the profit margin of the company and industry.

• ……as well as slowdown in economy. In the meantime, the tightening monetary policies in many countries as a result of inflationary pressure may slow down the economic activities moving forward even a recession. This could also negatively affect the operation of logistic company.

Earnings Outlook

• We raise our FY23F net profit to RM78.6m (from RM66.3m), +19.5% yoy growth as we lift our IBS revenue and margin forecasts on the back of slower-than-expected tapering of international freight rate. However, we retain our FY24F net earnings forecast of RM66.4m, -13.9% yoy with an anticipated tapering of international freight rate.

Valuation/Recommendation

• We maintain HOLD on Tasco with a lower target price of RM 1.02 (RM1.23 previously) as we roll over our valuation to FY23F earnings forecast.

• Our target price is now ascribed an PE multiple of 12.1x (which is -1SD of its 2-year mean PE) on Tasco’s FY24F EPS of 8.41 sen as we believe the current share price has factored in all the positives on top of expected freight rate tapering off in FY24, and taking into consideration of all the downside risks mentioned above. Our target price renders 9% upside to the current share price of RM 0.93.

Source: JF Apex Securities Research - 27 Jul 2022