Tasco  reported  1QFY13  core  net  earnings  of  MYR4.3m,  which  was weaker  than  expected.  Sales  and  earnings  at  both  its  international  and domestic solutions divisions fell due to weak global economy and lower domestic  business  volume.  We  see  a  brighter  2H  in  anticipation  of  a stronger  economic  recovery.  We  downgrade  the  stock  to  NEUTRAL given that the share price has reached our FV of MYR2.35.  

-  A weak start. Tasco’s 1QFY13 earnings, which slipped 42.1% q-o-q and 34.0%  y-o-y  to  MYR4.3m,  were  weaker  than  expected,  partly  due  to seasonality.  Revenue  was  also  lower,  dropping  by  10.9%  q-o-q  and 21.1%  y-o-y.  Its  international  business  solutions  segment  was  mainly impacted  by  a  weak  global  economy  and  lower  exports  from  major customers  in  the  manufacturing  and  tobacco  sectors.  Meanwhile,  the performance of its domestic solutions segment was dampened by a drop in customs clearance, haulage and warehouse segments.  

-  A  better  2H.  Our  economist  believes  there  is  growing  optimism  on  the health of the global economy although significant challenges remain with Malaysia’s  GDP  growth  projected  at  5.4%  for  2013.  With the Group’s strategies to boost sales and improve profit margins, we expect a better 2H for the company.  

-  Downgrade  to  NEUTRAL,  FV  unchanged.  We  are  keeping  our valuation  and  forecasts  in  anticipation  of  a  stronger  recovery  in  the following 6  months.  Tasco’s share price has rallied  in  recent  weeks  and breached our FV of  MYR2.35. Given the slight downside to our FV,   we are  downgrading  our  call  on  the  stock  to  NEUTRAL  from  BUY  with unchanged FV based on 7x FY13 P/E.

Source: RHB