INVESTMENT HIGHLIGHTS

• FY19 results below expectations

• International segment PBT dented by ocean freight forwarding division

• Performance of domestic segment cushioned by cold chain logistics

• Expect stronger contribution in cold supply chain logistics in FY20 following the value accretion from JOIN’s 30% acquisition

• Revise earnings downwards to reflect higher costs associated with the convenience retail logistics business and lower contribution from the ocean freight forwarding segment.

• Maintain trading BUY with revised TP of RM1.68 per share

FY19 normalised PATAMI below estimates. Tasco recorded FY19 normalised PATAMI of RM11.9m (-44.4%yoy). This was below our and consensus estimates, representing 86.0% and 81.6% of the full year forecasts respectively. The negative variance was attributed to the start-up costs for their convenience retail logistics business combined with higher finance costs for the new cold chain logistics business, and increased professional and compliance expenses for corporate merger & acquisition exercises. Nevertheless, post-FY19, we expect finance costs to gradually decrease following the cost savings from the 30% divestment.

International segment PBT decreased by -45.7%yoy in FY19. Tasco’s ocean freight forwarding business slumped into the red with an annual loss before tax of -RM3.5m as existing clients opted for direct shipment booking. Meanwhile, Tasco’s air freight forwarding PBT advanced by +173.0%yoy mainly due to the increased volume from aerospace manufacturers and capacitor manufacturing clients which offset the discontinuation of a major E&E client. This helped pared the overall PBT decline in the international segment.

Domestic segment cushioned by CSC business. The contract logistics segment posted a -56.5%yoy drop in PBT despite the +8.8%yoy revenue increase. The growth in revenue was due to increased contribution from its solar panel and music instrument partner. However, this was offset by the start-up expenses and additional costs to cater for the seasonal volume surge under its newly secured convenience retail logistics business. In contrast, losses of the trucking division narrowed down by -65.0%yoy amidst continuous cost reduction measures. We also note that the PBT of the cold supply chain business rose by +79%yoy, cushioning the -32%yoy decline in domestic segment profitability.

Source: MIDF Research - 30 May 2019