Results

• Tasco Berhad (Tasco) posted revenue of RM493.9m in 2QFY23 which was higher by +56.6% yoy and +8.9% QoQ. The better performance was mainly due to robust performance in Domestic Business Solutions (DBS) supported by strengthening of domestic demand and steady recovery in labour market conditions and ongoing policy support.

• Losses in associated companies and drop of International Business Solutions (IBS) caused marginally lower QoQ in profit. The Group reported PATAMI of RM24.1m in the quarter which surged 53.8% YoY but dropped marginally by 1.2% QoQ, mainly caused by RM3.3m of losses in its associate company and lower PBT contribution from IBS.

• Results beat expectations. Tasco’s 6MFY22 profit of RM 48.6m is above our/consensus forecast, accounting for 62%/60% of our/consensus full year forecast. The remarkable results were mainly due to tapering of international freight rate which was slower than our expectation.

• Drop of international freight rates resulted lower QoQ revenue in IBS segment despite business volume was up by 20% QoQ. On a QoQ basis, the Group posted lower Revenue (-8.5 % qoq) and PBT (-4.5% qoq) despite posting forex gain and higher business volume in Ocean Freight Forwarding (OFF) during the quarter. The weaker performance in IBS is a result of reduced international freight rates which caused lower freight forwarding revenues.

• Recovery of DBS segment. During the quarter, the Group’s DBS segment recorded a RM255m revenue (+32.6% qoq and +61.4% yoy) and RM16m PBT which grew +20.9% qoq and +18.5% yoy after consecutive declines in yoy. The better performance was mainly due to robust domestic demand and export activities from a steady recovery and easing of supply disruption.

Comments

• International freight rate peaked and trending downwards of but at a slower pace than expected. Despite freight rate falling back marginally from its peak, the extent is weaker than expected as the prolonged supply chain resulted by the Europe-Russian conflict.

• DBS segment’s margin still struggling. The Group’s DBS segment reported a 6.3% PBT margin in the quarter which dropped 0.6ppts qoq and 2.3ppts yoy despite revenue improving. We reckon that profit margin of the segment will only improve upon the completion of its Shah Alam Logistic Centre.

• Warehouse expansion on track. The Group has started its expansion plan in the Shah Alam Logistic Centre (SALC) by rebuilding a modern 4-storey warehouse with approximately 650k sqft warehouse space by creating a net increase of 470k sqft of warehouse space after demolishing the old single storey warehouse. Phase 1 is expected to be completed by Jan CY24 and. In the meantime, Tasco plans to embark on Phase 2 to build another 500k sqft warehouse space next FY.

• Short-term performance will continue to be driven by strong external trade and easing of supply chain disruption…… The prospects of the Group in the near term is in line with the industry’s promising outlook in the era of post-pandemic fuelled by strong external trade, favourable Malaysian GDP outlook and easing of supply chain disruption followed by reopening of global economic.

• …… but long-term outlook faces headwinds from global economic uncertainties. The global economy seems to be moving towards a challenging time due to inflationary pressure, tightening fiscal policy and geopolitical conflicts. The headwinds have posed uncertainties of global economic slowdown and even a recession, which may cause lower business volume to the industry.

Earnings Outlook

• We raise our FY23F net profit to RM85.5m (from RM78.6m), +29.8% 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, -21.7% yoy with an anticipated of economic slowdown in the next FY.

Valuation/Recommendation

• We maintain HOLD on Tasco with a lower target price of RM 0.91 (RM1.02 previously) as lower PER multiple is assigned followed by a valuation revision of global capital assets due to economic uncertainty.

• Our target price is now ascribed a PE multiple of 11x (12.1x previously) which is -1SD of its 2-year mean PE on Tasco’s FY24F EPS of 8.3 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 8% upside to the current share price of RM 0.845.

Source: JF Apex Securities Research - 28 Oct 2022