INVESTMENT HIGHLIGHTS

• Tasco is one of Malaysia’s largest total logistics companies

• It is poised to become a market leader in cold chain logistics

• We forecast a 3-year profit CAGR of 20% on better outlook

• Initiate coverage with a BUY call and TP of RM2.91

Total logistics solutions provider. Tasco commenced operations in 1974 under the name of Trans-Asia Shipping Corp Sdn Bhd. Subsequently, it changed its name to Tasco and was listed on Bursa Malaysia in 2007. The company is principally engaged as a total logistics solutions provider. Its core business is comprised of the international (freight forwarding) and domestic (contract logistics and trucking) divisions.

Poised to become a market leader in cold chain logistics. Through the announced acquisitions of Gold Cold and MILS, Tasco would leapfrog its rivals to become a joint-market leader in cold chain logistics, with a total warehouse pallet count of 36,100. Combined, the acquisitions totalling RM332m represents ~70% of Tasco’s current market capitalisation, reflecting the company’s strong desire to grow.

We are forecasting a 3-year profit CAGR of 20.2% supported by:

i) International business growth benefitting from a rebound in Malaysia’s external trade which expanded +24.3%yoy in 1QCY17. ii) Domestic segment as we anticipate further improvements in domestic economic activity and higher demand for 3rd party logistics (3PL); iii) Earnings accretive acquisitions of cold chain logistics assets. The higher margin business would help bolster Tasco’s bottom-line.

Recommend BUY with a target price (TP) of RM2.91, derived from forward FY18 price-to-earnings ratio of 12x. We believe that the company’s ROE will improve to 13.7% in FY18 with the acquisitions of Gold Cold and MILS, primarily from a higher equity multiplier and profit margin according to our DuPont analysis. We note that the logistics sector has been receiving heightened interest as as a direct proxy to economic growth and a beneficiary of increased e-commerce activity.

Source: MIDF Research - 11 May 2017