We  downgrade  Tasco  to  NEUTRAL  as  its  current  share  price  has exceeded  our  MYR2.30  FV,  having  already  priced  in  our  growth expectations.  The  World  Cup    event  is  unlikely  to  have  a  pronounced impact on Tasco and we do not expect an  earnings surge in in the near term.  Our earnings forecast and MYR2.30 FV remains unchanged.

Fairly  valued.  As  Tasco’s  shares  have  rallied  by  16%  since  the company  announced  its  4QCY13  earnings,  we  think  that  the  current price has  factored  in  our  earnings growth  expectations. We  believe  this may  be  a  good  price  level  for  investors  to  lock  in  profits  and  look  for positive catalysts to propel its future earnings higher.

Earnings  to  grow,  but  not  exponentially.  Tasco’s earnings are  very dependent  on  the  state  of  the  economy.  RHB  economists  believe  that the  global  economy  is  set  for  stronger  recovery  momentum  while Malaysia’s real  GDP is  seen growing  5.4%  this  year,  driven  by  resilient domestic  demand.  Having  said  that,  we  expect  Tasco’s earnings  to grow, but only at a steady pace. Also, we think the anomaly arising from this  year’s World  Cup  event  is  unlikely  to  be  pronounced  as  most households  would  have  already  upgraded  their  TV  sets,  and  hence  the demand  to  replace  their  present  TVs  may  not  be  as  strong  as  before when LED TVs were still a novelty back in 2010.  

Expanding warehouse at PTP. We understand from  management that Tasco is banking on the growth potential of Port of Tanjung Pelepas and constructing  a    warehouse  of  approximately  200k  sq  ft  targeted  for completion  in  early  2015.  This  is  in  line  with  the  port’s  ongoing infrastructure  expansion  to  cater  to  the  growing  needs  of  its  shipping lines Maersk and its P3 alliance partners, CMA and MSC.  

Downgrade  to  NEUTRAL.  We  make  no  changes  in  our  net  profit projection  and  valuation  and  keep  our  MYR2.30  FV,  pegged  to  an  8x FY14F P/E, which is its historical average P/E. Downgrade to NEUTRAL as  the  share  price  has  breached  our  FV.  We  think  the  share  price  has already  priced  in  the  11.4%  earnings  growth  forecast  for  FY14,  in addition to the anticipated recovery in exports.

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TASCO is a leading third party logistics provider.

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Source: RHB