Results

• Tasco Berhad (Tasco) recorded a 2QFY21 net profit of RM10.7m, which soared 161.0% yoy and 311.5% qoq. Overall, the Group achieved a 1HFY21 net earnings of RM13.3m, surging 146.3% yoy.    

• Result broadly within expectations. Overall, we deem the Group’s performance is in line with our estimate despite 1HFY21 net earnings account for 42% of full year forecasts. Moving forward, we shall see Tasco to post stronger bottom line in 2HFY21 to meet our full year earnings forecast.  

Comment

• Better yoy performance for International Business Solutions (IBS) and Domestic Business Solutions (DBS) underpinned 2QFY21……. Air Freight Forwarding (AFF) (PBT: +264.3%) and Ocean Freight Forwarding (OFF) (PBT: +400.0%) drove the growth of IBS thanks to higher freight charges. On the other hand, Cold Supply Chain (CSC) (PBT: +420.0%) and Trucking division (turnaround of PBT from a loss of RM1.1m in 2QFY20 to a profit of RM2.3m in this quarter) spurred the growth of DBS. The better showing of CSC was mainly contributed by convenient retail business whilst Trucking division was lifted by lower operating costs coupled with new distribution business of fast food chain store. Besides, reduction in finance costs, -23.9% also helped to lift the Group’s overall bottom line.

• ……….and 1HFY21 results. Likewise, Tasco chalked up better 1H results thanks to AFF (PBT: +226.9%) as a result of securing a new electronic customer, surging airfreight rates due to reduced airfreight supply capacity coupled with shippers rushing to ship out urgent and backlog shipments by switching from sea mode to air mode since the country moved into the less restrictive phases of Conditional MCO and Recovery MCO. Additionally, the growing CSC (PBT: +205.6%) underpinned by its resilient F&B logistics further boosted its 1H performance. Furthermore, reduction in non-operating and general expenses, largely attributable to reduced finance costs, declining professional fee and initiation of cost control measures contributed to the increase in the Group’s PBT.  

• Contract Logistics (CL) and Trucking businesses lifted qoq performance. Notably, we witness the stronger showing of CL as its revenue and PBT surged 51.3% and 181.5% respectively. Increase in business volume and shipments largely from solar panel, E&E, musical instruments, consumer goods as well as IT and office equipment customers drove the performance of custom clearance, haulage, warehouse and inplant. Meanwhile, profit turnaround of Trucking division was mainly attributable to a newly secured distribution business of fast food chain stores in 2QFY21 coupled with increased deliveries for E&E, automotive, musical instruments, tobacco & cigarettes and cross border (Thailand and Singapore) business.

• Proposed 2 sen interim dividend. To our surprise, Tasco has declared an interim dividend of 2 sen/share for FY21 as to reward its long-term shareholders. There was no dividend declared in 2QFY20.             

• Lower effective tax rate. To recap, Tasco has been granted an Investment Tax Allowance (ITA) by Malaysian Industrial Development (MIDA) for carrying out Integrated Logistics Services (ILS) activities. The Group plans for RM400m capex for the next 5 years for capacity expansion. Hence, the savings from lower tax payments are estimated at RM60m for the next six to seven financial years or equivalent to RM8-10m/p.a. We understand that it can be backdated to this financial year FY21 with its capex spending given two years consideration period of the incentive scheme.

• Venturing into E-commerce and healthcare logistics. Tasco is keen to venture into E-commerce by partnering with companies in the last-mile logistics market as to capitalizing on prevailing online shopping trend. Moreover, the Group also intends to leverage its CSC expertise to explore opportunities in healthcare logistics market as some drugs need to be stored and delivered in a temperature-controlled supply chain. 

Earnings Outlook/Revision

• We raise our FY21F and FY22F net earnings forecasts by 6% and 12% to RM33.6m and RM39.2m respectively after lifting our margins on both IBS and DBS business divisions. We believe the Group to continue benefiting from current pandemic with supply disruptions on air and ocean freights which result in higher freight rates as well as better business volume for its CL as customers are eager to increase its stock level to cope with disruption in supply chain on the back of possible economic shutdown pursuant to second or third wave of Covid-19. We see more earnings upside as our net profit forecasts have yet to factor in the ITA which would render lower effective tax rates to the Group.

  Valuation & Recommendation

• Maintain BUY on Tasco with a higher target price of RM2.52 (RM2.06 previously) following our earnings upgrade and applying upcycle PE multiple of 15x FY21F EPS (from 13x). We favour Tasco for its commanding position in local logistic industry which offers integrated services as well as its niche expertise in food retail logistics.