KEY INVESTMENT HIGHLIGHTS

• Tasco is eligible for tax incentive for its ILS activities
• Income tax exemption eligible via ITA on 60% of qualifying capital expenditure incurred
• Approval Letter stipulated capital expenditures to the tune of at least RM240.0m
• Price runs up prior to the announcement
• FY21-22F earnings lifted by +20.5% and +18.2%
• Maintain NEUTRAL with revised TP of RM1.32 per share

Tax Incentive from MIDA. In a filing with Bursa yesterday, Tasco has announced that the company has received an approval letter from MIDA for the second round of tax incentive for carrying out Integrated Logistics Services (ILS) activities. The tax incentive is one of the initiatives by the Government to enhance the capabilities of logistics services providers, in line with The Logistics And Trade Facilitation Masterplan, introduced by Ministry of Transportation.

The details of incentives. Under the ILS, Tasco will be able to enjoy income tax exemption via Investment Tax Allowance (“ITA”) of 60% on its qualifying capital expenditure incurred within five years. This can be offset against 70% of statutory income for each year of the tax relief period. Furthermore, management has also disclosed that one of the terms in the Approval Letter stipulated that Tasco shall make capital expenditures related to logistics to the tune of at least RM240.0m for a period of five years

…more details on the tax incentive. Based on the guideline from MIDA, to qualify for the exemption, among others, Tasco must: (i) increase fixed asset investments of at least 50% on top of existing fixed asset investments related to logistics or; (ii) increase fixed asset investments of 30% on top of existing assets depending on the company capex investment allocation. The asset size and required capex investment of RM240.0m is line with the terms stipulated by in the Approval Letter and the guideline from MIDA. To note, as of 1Q20, Tasco’s total long-term assets stood at RM596.8m with PPE as the biggest portion at ~83%, or RM496.99m.

Impact on earnings. Based on our preliminary deductions - pending further management disclosures, we estimate that the savings from the tax exemption could translate to between RM3.0m – RM4.0m for FY21 and FY22. We arrived at the tax saving estimates by multiplying our PBT forecast with the estimated corporate tax rate at 24%. Subsequently, we apply the 70% offset against our estimated statutory income. Our calculation is simple and direct, yet sufficient to illustrate the impactful size of the tax incentive towards Tasco’s bottom line.

Source: MIDF Research - 11 Sept 2020