INVESTMENT HIGHLIGHTS

• 9MFY19 results of RM10.4m (-57.7%yoy) came in below estimates in light of higher financing costs

• International segment dragged by ocean freight forwarding business as customers opt for direct booking

• Domestic segment supported by cold supply chain business

• Revise FY19 and FY20 earnings downwards after assuming slower revenue growth for warehousing and ocean freight

• Maintain NEUTRAL with adjusted TP of RM1.23 per share

9MFY19 normalised PATAMI below estimates. Tasco recorded 3QFY19 normalised PATAMI of RM2.7m (-68.0%yoy), bringing its 9MFY19 normalised PATAMI to RM10.4m (-57.7%yoy). This was below ours and consensus’ estimates by a variance of more than -10%. The deviation was mainly attributable to higher borrowing costs to finance for the cold supply chain (CSC) business and the land warehouse in Pulau Indah.

Subdued international segment PBT in 3QFY19. The marginal growth in PBT for the segment was mainly stem from the ocean freight forwarding business which recorded a loss before tax of -RM0.4m amidst: (i) the drop volume especially from a solar panel customer; and (ii) the preference of existing clients for direct sea shipment booking. Nonetheless, the discontinuation of a loss making business with an E&E customer in the air freight forwarding business coupled with spot shipment helped to pare the decline in PBT of the segment. Looking ahead, Tasco’s appointment as AirAsia’s first direct logistics partner early this year will provide support for the air freight segment in the long run.

Domestic segment buttressed by CSC business. The main driver for the segment in 3QFY19 was the cold supply chain (CSC) business which recorded a post-acquisition revenue and PBT of RM25.8m (+22.0%yoy) and RM3.4m (+27.0%yoy) respectively. This translates into a reasonable PBT margin of 13%, marking its fifth consecutive quarter of being above 10%. To recall, the CSC business handles approximately 80% of all the domestic ice cream market in Malaysia. Losses before tax for trucking services, meanwhile, narrowed down by -56.7%yoy due to continuous cost-saving measures.

Source: MIDF Research - 22 Feb 2019