Results

• Tasco Berhad (Tasco) posted revenue of RM392.7m in  3QFY23 which was lower by -13.7% YoY and -20.5% QoQ. The weaker performance was mainly due to revenue decline from International Business Solutions (IBS) segment resulting in the downward trend in international market freight rates.

• Higher YoY but lower QoQ Profit. The Group reported  PATAMI of RM20.4m in the quarter which grew 131.9% YoY but dropped 15.3% QoQ, mainly dragged by lower PBT  contribution from the IBS segment.

• Results in line with expectations. Tasco’s 9MFY23 profit of  RM69m is deemed to be in line with ours but slightly higher than the consensus forecast, accounting for 81%/87% of our/consensus full-year estimations. We expect lower QoQ profit to be recorded in 4Q23 in view of the seasonal effect.

• Lower QoQ of the IBS segment due to lower freight rates and volume. On a QoQ basis, the Group posted lower revenue (-22.6 % QoQ) and PBT (-6.5% QoQ) in the segment. The weaker performance in IBS is dragged down by the drop in international freight rates and lower business volume contributions, particularly from the US and Russian markets in both Air Freight Forwarding (AFF) and Ocean Freight  Forwarding (OFF) business.

• Lower QoQ revenue but higher profit in Domestic Business Solutions (DBS) segment. During the quarter, the  Group’s DBS segment recorded RM207.8m in revenue (-18.5%  QoQ but +29.3% YoY) and RM17.4m in PBT (+8.8% QoQ and +15.9% YoY) which was consecutive QoQ growth. During the quarter, the segment experienced a broad-based reduction in business volume, particularly from E&E, food, musical instruments and solar panel products. However, margin improvement in Contract Logistics and Trucking business has supported the growth of profit despite lower revenue.

Comments

• International freight rates are further trending downward, but at a slower pace than expected. Despite the freight rate falling back marginally from its peak, the extent is weaker than expected as the prolonged supply chain caused by the Europe-Russian conflict. We expect the rates will be further trending down in the coming period, underpinned by the backdrop of inflationary pressure and an interest rate upcycle that are likely to weigh on consumer demand and depress the freight rates further. Nonetheless, the freight rates will still be higher than pre-pandemic levels due to the elevated fuel and labour costs compared to pre-pandemic.

• Expect margin will be impacted by the weakening of the USD. The Group bill their freight customers in USD. Hence, we expect revenue and profit margins to be negatively affected by the weakening of the dollar in the next quarter.

• 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 of 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. In the meantime, Tasco plans to embark on Phase 2 to build another 500k sqft warehouse space next FY.

• Slower consumer spending and high inflation result in slumping business volume. In 3Q23, we have seen the business volume from both IBS and DBS segments weaken as 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 are causing lower business volume to the Group.

Earnings Outlook

• We retain our FY23F net profit forecast at RM85.5m which +29.8% YoY growth. Meanwhile, we remained unchanged FY24F net earnings forecast at RM66.4m, which is -21.7%  YoY with an anticipated of economic slowdown in the next FY.

Valuation/Recommendation 

• We maintain HOLD on Tasco with an unchanged target price of RM 0.91.

• Our target price is now ascribed a PE multiple of 11x 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 the expected freight rate tapering off in  FY24, and taking into consideration of expecting slower economic lead to lower business volume. Our target price renders a 1% upside to the current share price of RM 0.90.  

Source: JF Apex Securities Research - 3 Feb 2023