Tasco’s 2QFY13 results  came  in  below  our  expectations,  with  its  poor results  impacted  by  the  sluggish  economic  outlook  and  weak  exports. Both its core businesses were affected and we have revised downward our  earnings  forecasts.  Thus,  while  we  maintain  our  NEUTRAL  stance on Tasco, but have derived a new FV of MYR2.10 (from MYR2.35) based on 7.0x FY14F P/E, as we rolled over our valuation. 

-Below  expectations.  Tasco’s 2QFY13 core net earnings of MYR5.4m (+26.6% q-o-q; -23.3% y-o-y) was below our expectations. Its cumulative 1HFY13 core net profit of MYR9.7m (-28.4% y-o-y) only reached 28.9% of  our  FY13  forecast.  This  was  mainly  attributed  to  the  weaker performance  from  both  its  international  business  solutions  (IBS)  and domestic  business  solutions  (DBS)  segments,  which  posted  YTD declines  in  revenue  of  MYR14.9m  y-o-y  and  MYR13.5m  y-o-y respectively. For IBS, air freight forwarding registered a drop in revenue of MYR15.7m (22.1% y-o-y), due to lower export volumes from its major customers,  but  ocean  freight  forwarding  was  able  to  record  a  slight revenue  growth  of  2.3%  y-o-y.  For  DBS,  contract  logistics  recorded  a drop  in  revenue  of  13.4%,  as  its  clearance,  haulage  and  warehouse divisions registered lower business levels, while the trucking division also dropped by 0.9% y-o-y.

- Earnings forecast slashed. Following the poor reported results, we are revising our earnings forecast by downgrading our FY13F/FY14F growth assumptions for IBS to -1.6%%/+8.7% (from +6.0%/+8.7%) respectively. For  DBS,  we  are  downgrading  FY13F/FY14F  growth  assumptions  to  -7.0%/12.5%  in  (from  +11.5%/+15.0%)  respectively.  Thus,  Tasco’s FY13F/FY14F core net profit has been revised to MYR22.6m/MYR29.5m (MYR33.6m/MYR38.9m previously) respectively.

- Risks.  A  prolonged  sluggish  economy  and  weak  exports  will  further dampen Tasco’s performance.

- Maintain  NEUTRAL,  FV  revised  downward.  We  have  derived  a  new FV of MYR2.10 (from MYR2.35) for Tasco, based on 7.0x FY14F P/E, as we  rolled  over  our  valuation.  However,  we  maintain  our  NEUTRAL  call, as we think that the local and global economies may need more time to recover. 

Source: RHB