Following  a  revision  of  earnings  after  meeting  the  management,  we maintain  our BUY recommendation with a higher FV of MYR3.90  (based on  11.3x  FY15F  EPS).  Tasco  has  secured  a  few  new  clients  for  its contract logistics division upon the expansion of its warehouse. These are clients with high inventory turnover, which bodes well for Tasco  as it may see sustained earnings momentum over the coming years. 

Company  outlook  remains  bright.  We  visited  Tasco  recently  and gauged that  the business volume has been  growing in tandem with the regional  economic  growth.  Recall  that  the  company  reported  strong earnings  growth  of  74%  y-o-y  in  1QFY15  of  MYR10m,  which  came  in above our expectations. 1QFY15 strong numbers were partly due to one urgent  shipment  from  one  of  its  clients  in  the  air  freight  division,  and businesses from new customers in its warehousing division, which  formspart of the contract logistics division. 

Contract  logistics  growing  positively.  Tasco’s  new  high  spec warehouse in Shah Alam is currently  fully utilised.  The earnings boost of MYR12.3m from MYR4.9m, from its contract logistics in the 1QFY15 wasattributed  to  new  clients  secured,  which  should  give  a  further  boost  to earnings over the ensuing quarters. Its new clients have a high inventory turnover business model.

Outlook ahead.  Tasco’s earnings have  benefitted from the strong trade numbers in 1H2014. While we expect Malaysia’s trade growth to subside in  the  remaining  half  of  2014  given  the  higher  base  effect  last  year, earnings growth is expected to remain commendable over the immediate to  medium  term,  thanks  to  the  resilient  growth  in  domestic  demand . Downside  risks  that  could  squeeze  margins  are  the  government’s subsidy rationalisation scheme and the implementation of the Goods andServices Tax (GST). 

Earnings revision. We have tweaked our volume growth assumption for contract  logistics  and  air  freight  divisions  for  FY15F  and  FY16F respectively.  As  such,  our  overall  net  profit  forecast  for  FY15F  and FY16F  has  been  revised  to  MYR34m/MYR37m  (from MYR26m/MYR29m) respectively. 

Maintain  BUY.  Following  the  revision  in  earnings,  our  FV  is  therefore raised to MYR3.90 (from MYR3.00), based on an unchanged FY15F P/Eof 11.3x, which is the industry average.

Source: RHB