• Maintain BUY and MYR2.03 TP, 114% upside and c.3% yield. We recently visited TASCO’s facilities and came away feeling positive on the group’s resilient performance, sustain demand growth and pricing power, on top of the encouraging volume throughput growth and favourable freight rates. Its valuation remains undemanding at 8x FY23F (Mar) P/E, and we can expect its positive earnings streak to sustain despite supply chain challenges and cost pressures, thanks in part to multiple growth avenues driven by capacity expansion and new customer win.

• Volume short of pre-pandemic levels, with room for growth. While management guided that volume for the freight segment is still 20-30% lower from pre-pandemic levels, the Department of Statistics Malaysia (DOSM) reported that Malaysia’s trade flows continued its strong upward momentum in May 2022 despite historically being a subdued month in the year, with exports and imports registering double-digit growth of 30.5% and 37.3% YoY – suggesting that there is plenty of opportunity for TASCO to ride on the wave of rising trade volume. Also, the projected 5.3-6.3% GDP growth for 2022, driven in part by gross exports that are projected to grow by 10.9% YoY, point to the likelihood of stable growth in volume throughput.

• Tapping into the growth potential in cold supply chain (CSC). TASCO remains a key player in the CSC segment, and we gather that it will grow by 10-15% this year. Capex allocation for the CSC segment stands at MYR10m (which includes MYR4m for solar panel), and part of TASCO’s strategy to grow this segment is by looking into East Malaysia likely via a JV, and tapping into the potential seen in Johor or Penang. Expansion to double its Westports’ cold chain facilities is also plausible, considering that the group owns the adjacent land.

• Unperturbed by rising cost. We seek comfort in the fact that cost pressures remain under control for TASCO at this juncture and group-wide cost pass-through exercise to customers is also taking place, at a range of between 8-25% for all services. Rise in fuel costs is a non-issue – the Fuel Adjustment Factor (FAF) is in place as part of its quotation and contracts ever since fuel prices were on floating terms. Elsewhere, the rising labour, utility and compliance costs remain but the negotiation for re-pricing with all customers should also help to fuel growth moving forward. On labour shortage, management is hopeful that c.600 foreign workers are bound to set foot in Malaysia within the next few months.

• Keep BUY. We leave our earnings estimates unchanged. Our TP is pegged to a 19x P/E on FY23F EPS (+1SD from its 5-year mean), and includes a 2% ESG premium. At 8x forward P/E, the stock trades at an undemanding multiple to its historical mean and regional major 3PL peers. Downside risks to our call include weaker-than-expected recovery in freight volumes, and higher-than-expected operating expenses.

Source: RHB Research - 29 Jun 2022