INVESTMENT HIGHLIGHTS

• 9MFY18 results below forecasts due to higher financecosts and delay of acquisition of MILS Cold Chain Logistics

• International segment PBT dented by competitive freight charges

• Domestic segment revenue boosted by regional distribution hub

• Revise earnings downwards from lower cold chain earnings

• Maintain BUY with revised TP of RM2.62 per share

9MFY18 normalised PATAMI below estimates. Tasco recorded 3QFY18 normalised PATAMI of RM8.6m (+3.6%yoy), bringing its cumulative 9MFY18 normalised PATAMI to RM24.8m (+8.5%yoy). This fell short of our and consensus estimates, representing 67% of the full year forecasts respectively. The deviation is attributed to higher finance costs and delay of the acquisition of MILS Cold Chain Logistics Sdn Bhd (MILS), where the synergistic financial impact will only be felt in FY19. This is later than our earlier estimate, as we had forecasted the acquisitions to conclude by 1HCY17/2QFY18.

International segment revenue declined -4.6%yoy in 3QFY18. Tasco’s air freight forwarding revenue declined -9.3%yoy due to the shift in export shipments of aerospace via sea mode. Hence, the ocean freight forwarding benefited from this change together increased shipment volumes from an office equipment customer and an aluminium customer, posting a +4.9%yoy increase in revenue. However, the PBT of the international segment substantially declined by -51.2%yoy as a result of competitive freight rates and surcharges.

Domestic segment revenue rose by +42.2%yoy in 3QFY18 as cold chain logistics division via GCT posted an RM21.1m post-acquisition revenue. Aside from that, the ongoing operations of the regional distribution centre for Renesas combined with newly secured E&E customers in the central region boosted revenue for the contract logistics division. Both of these sub segments cushioned the loss before tax incurred in the trucking division which narrowed by -9.3%yoy due to the increase in fuel costs.

Update of MILS acquisition. In January 2018, Tasco and Swift Integrated Logistics Sdn Bhd (SILS) have mutually agreed to a further extension of time up to 30 April 2018 for the fulfilment of conditions for the acquisition of MILS Cold Chain Logistics Sdn Bhd (MILS) and the six parcels of leasehold land in Pulau Indah.

Revise earnings downwards. We are revising down our earnings estimates for FY18 by -7.7%, reflecting lower contributions from the cold chain segment amidst the delay of the full acquisition of MILS. In addition, we are also adjusting our FY19 earnings forecasts by -2.4% due to anticipated higher finance costs related to the acquisition.

Maintain BUY with an adjusted target price (TP) of RM2.62 per share with forward price-earnings ratio of 12x pegged to FY19 EPS of 21.8sen. We believe that Tasco’s impetus for growth lies in its newly acquired cold chain logistics assets and its newly acquired global distribution contract for Renesas. Despite the delay in the acquisition of MILS, we reckon that the contribution would be reasonable in the long run.

Source: MIDF Research - 12 Feb 2018