Tasco’s earnings, which had been pressured by declining exports, have recovered somewhat of late. Thus, we expect its outlook to improve in the near- to mid-term, although we are lowering our FY13F-14F earnings forecasts  due  to  higher  fuel  costs.  Notwithstanding  the  lower  net profits,  we  lift  our  call  to  BUY  (from  Neutral)  with  our  FV  revised  to MYR2.30 (from MYR2.10). 
 
- Earnings  pressured.  Tasco’s 2Q13  core  earnings  came  in  lower  at MYR5.4m  (+26.6%  q-o-q;  -23.3%  y-o-y),  which  was  below  our expectations. This was due to its international business division’s weaker performance  on  lower  export  volumes.  Its  domestic  business  division also  faced  challenges  during  this  period,  as  business  volumes  declined on lower demand and intense competition.  

- Export  data  on  the  mend.  Tasco  has  been  vulnerable  to  the  sluggish export  levels,  notably  from  its  major  Japanese  clients.  However,  the latest  export  data  from  the  major  trading  nations  have  shown encouraging improvement and Japan alone saw exports climbing 14.7% in August (July: +12.2%) – the country’s strongest pace since 2010. With this  in  mind,  we  expect  Tasco’s  operations  to  begin  recovery  by  year-end.  

- Revising earnings to factor in rising fuel cost. Although Tasco will be able to pass-through its higher fuel costs to most of its customers, there will  be  implementation  delays.  Thus,  we  conservatively  revise downwards our FY13/FY14 earnings forecasts slightly by 4.4%/2.7%.  

- Risks. Prolonged sluggishness in the economy and weak exports could further dampen Tasco’s performance.

- Upgrade  to  BUY,  lifting  FV.  As  the  macroeconomic  outlook  may brighten  by  year-end,  we  upgrade  Tasco’s FY14F  P/E  to  8.0x  (from 7.0x), which is its historical P/E. This, however, remains below the 10.1x FY14F  P/E  of  its peers.  Note,  though,  that  Tasco has  greater  exposure to  the export  market,  where  a  sustainable  recovery  has  yet  to  be seen. Hence,  we  revise  upwards  its  FV  to  MYR2.30  (from  MYR2.10)  and upgrade our call to BUY (from Neutral).

Source: RHB