• Stay BUY, new MYR1.90 TP from MYR2.14, 60% upside and 2.5% FY23F yield. We expect TASCO to book a robust YoY growth in the upcoming 4QFY22 (Mar) results on strong performances underpinned by buoyant volume throughputs and favourable freight rates. We continue to like the firm for its undemanding valuation and positive earnings momentum despite COVID-19-related challenges. This is alongside multiple growth avenues driven by capacity expansions, tax incentives, and forays into new markets, eg food retail, healthcare, and e-commerce.

• Beneficiary of a pick-up in industrial activities and trade volumes. Following the traction seen in 2021, Department of Statistics Malaysia reported that export and import volume indices continued to see uptrends in January (+7% and +18% YoY) and February (+0.3% and +10.1% YoY). This is further complemented by the projected 5.3-6.3% GDP growth for 2022, driven in part by gross exports that are projected to grow by 10.9%. With the impending broader economic reopening, we can expect stable growth in volume throughputs to be a boon for an integrated logistics solutions provider like TASCO.

• Elevated freight rates to keep the momentum going. The tightness in air and ocean freight markets is expected to persist in view of port congestions (now at Los Angeles and more recently in Shanghai). This points to a positive outlook for TASCO’s freight forwarding segment, as freight rates remain elevated and are further supported by the demand from a diverse clientele base across various economic sectors – namely its sizable exposure to the electrical & electronics segment (attractive in the continued technology upcycle) and new business wins. We think TASCO’s ease of access to in-demand cargo spaces – in the face of a supply chain disruption – to meet customers’ urgent shipping needs and backing from NYK Line’s logistics network puts it on a path towards steady volume growth.

• Results preview. Results are to be released on 28 Apr. We expect TASCO to continue its strong growth momentum and end FY22 with record earnings. Underlying operations are buoyed by the strength of its contract logistics solutions, as well as the robust growth for ocean and air freight forwarding, which are leveraging on the elevated freight rates. Besides, tax savings from its integrated logistics services scheme are also expected to kick in from this quarter onwards.

• Keep BUY. We leave our earnings estimates unchanged, maintaining our conservative stance. Our TP is now pegged to a 19x target P/E from 22x on FY23F EPS (+1SD above its 5-year mean) after taking into account the rising yield environment and higher risk premiums related to external events. It also includes a 2% ESG premium. At 11.6x forward P/E, the stock trades at an undemanding multiple to its historical mean and regional 3PL peers. Downside risks to our call: Weaker-than-expected recoveries in freight volumes and higher-than-expected opex.

Source: RHB Research - 13 Apr 2022