KEY INVESTMENT HIGHLIGHTS

• 1HFY20 normalised earnings came within expectations

• International business segment PBT increased by +1.8%yoy in 1HFY20 supported by ocean freight forwarding segment

• Growth in warehousing and haulage business cushioned the performance of the domestic business segment

• Earnings forecast unchanged

• Maintain NEUTRAL with an unchanged TP of RM1.22 per shares

1HFY20 normalised PATAMI below estimates. Tasco recorded 2QFY20 normalised PATAMI of RM4.0m (>+58.9%yoy). This brings Tasco’s 1HFY20 earnings to RM4.8m (-37.0%yoy) which met our full year FY20 estimates at 53.8% but missed street estimates at 32.0%. The lower earnings were lower due to widened losses the joint venture with YLTC Sdn Bhd.

International segment PBT increased by +1.8%yoy in 1HFY20. Tasco’s ocean freight forwarding (AFF) segment saw a profit of RM0.7m compared to a –RM0.9m loss a year ago. Strength in the segment came from the revenue hike of (+36.5%yoy) in the ocean freight forwarding business which regained lost clients while adding new ones. Nevertheless, overall gains for the segment were dragged by the -35.6% PBT decline for air freight forwarding business. This was due to the drop in export shipments and business of capacitor and chemical customers.

Trucking division remains in the red… PBT of the domestic business segment decreased by -26.4%yoy in 1HFY20, mainly contributed by the trucking division. Higher fixed operating costs and lower deliveries for E&E, telecommunication cigarettes and automotive parts customers pushed the trucking division into a loss before tax of –RM2.7m in 1HFY20 (vs PBT of RM0.7m). Nevertheless, The cold supply chain (CSC) business recorded a +23.6%yoy increase in revenue underpinned by strong demand for the service. Nevertheless, the PBT declined by - 68.7%yoy in the same period due to the internal reorganisation ad loss of a confectionery customer. Note that the loss-making convenience retail business was transferred to the CSC business from the warehousing business effective 1st April 2019.

…but contract logistics business cushioned the domestic business segment. Meanwhile, other sub-segments such as the contract logistics business experienced a +50.5%yoy increase in PBT in 1HFY20. Bulk of the sub-segment’s performance was supported by the >+100%yoy PBT growth in the warehousing businesses due to newly acquired FMCG customer and better warehouse occupancy. Likewise, the haulage business performed well amidst higher container deliveries for E&E and musical instrument customers. This outweighed the decline in in-plant business and custom clearance due to reduced shipments from a solar panel customer and project cargo coupled with the cessation of business with an energy manufacturer.

Earnings estimates. We make no changes to our earnings estimates as results met expectations.

Target price. We are maintaining our target price of RM1.22 per share. Our target price is derived by pegging our FY21 EPS to a forward PE ratio of 12.0x which equates to the average five-year PE ratio of its peers.

Maintain NEUTRAL. In 2HFY20, we opine that headwinds would come in the form of rising operational costs particularly due to new minimum wages beginning in CY20. Finance costs will remain elevated for the rest of the year before reducing gradually following rescheduled payments in FY21. Meanwhile, the unresolved trade dispute between the U.S and China will continue to pose uncertainty in global trade especially semiconductor shipments which are mainly transported via air freight. Nonetheless, this would be cushioned by the internal reorganisation mentioned earlier which aimed was to expand the clientele of the CSC business to include convenience stores, petrol kiosks and pharmacies. All things considered, we are maintaining our NEUTRAL stance on Tasco.

Source: MIDF Research - 22 Nov 2019