A lack of domestic catalysts coupled with the current challenging global economic outlook could potentially cap Tasco’s earnings growth in the near to immediate term, in our view. Maintain NEUTRAL call with a revised MYR1.55 TP (from MYR2.00, 2% upside) based on 10.5x FY17F EPS, which is its 3-year historical forward P/E average.

Subdued earnings prospects. We foresee unexciting earnings growth prospects for Tasco in the near to immediate term. This is on the lack of domestic catalysts, of which we expect the real GDP to slow down further to 3.9% in 2016 (2015: 5% YoY, 2014: 6% YoY). This, coupled with challenging external demand on the back of the tepid global economic environment, is likely to pose a real challenge for Tasco. This is because it is highly dependent on the performance of the local and global economies. We are also of the view that further earnings upside is currently limited by the recovery speed of its warehousing business, which was dragged by higher operating costs in the current financial year. Earnings forecast and risks. We revise downward our FY16F-18F (Mar) earnings by c.10-13% for after taking into account higher operating cost assumptions. Key risks include: i) slower-than-expected domestic and global economic growth, and ii) a sudden loss of major customers for its warehousing business.

Maintain NEUTRAL. Post the earnings revision, we maintain our NEUTRAL call with a revised MYR1.55 TP based on 10.5x FY17F EPS, ie its 3-year average forward P/E. We believe Tasco is currently fairly valued at its current level, given its unexciting near-term earnings prospects. Also, its forecasted 3% dividend yield should provide some immediate support to its current price level. Our corroborative DCF-valuation is also supportive of our TP (Figure 2).

SWOT Analysis

Source: RHB Research - 25 Feb 2016