• BUY this sector Top Pick with MYR2.03 TP, 118% upside and c.4% yield. TASCO beat expectations yet again, on the back of the strong performance of its international business (IBS). We remain optimistic on its growth prospects, given the expected throughput volume growth upon further economic reopening, and new business wins. The stock is trading at an attractive below-peer valuation, presenting a good opportunity to buy this leading logistics player with consistent earnings delivery and solid growth momentum.

• Above expectations. TASCO reported 1QFY23 core profit of MYR24.4m (-2.2% QoQ, +55% YoY). Standing at 29%/33% of our/consensus’ FY23 full-year forecasts, the results are deemed to have exceeded expectations. The positive deviation was attributable to the robust IBS segment, which more than doubled YoY in both revenue and PBT – due also in part to the re-categorisation of the supply chain solutions division as part of IBS.

• Sturdy YoY growth across all segments. 1QFY23 PBT for air and ocean freight forwarding surged by 85.4% YoY and 186.6% YoY. This was on the back of a broader economic reopening which led to a pick-up in business activities, and elevated freight rates, bolstered by supply chain bottlenecks. PBT for the Contract Logistics (CL) division was up 16.8% driven by increased export shipments and additional demand for storage by existing customers. The cold supply chain business demonstrated a strong 34.2% YoY growth from increased business volumes. QoQ, despite the overall positive revenue growth of 7.8%, PAT was 2.2% lower due to the absence of tax credit from the integrated logistics services tax scheme and absence of recovery of freight surcharge costs seen in 4QFY22 in the DBS segment.

• Outlook still favourable. Despite concerns of a recession, we believe that the further economic reopening, coupled with a favourable GDP outlook should provide positive throughput volume growth for TASCO – made even more attractive by its diverse clientele base. The existing supply chain bottlenecks are likely to lead to persistent tightness in air and ocean freight, which TASCO’s IBS segment will stand to benefit from. Organic growth from its existing customers is also expected to sustain, with an additional boost from new business wins within the retail trading segment and cost pass- through exercise. We look forward to the construction of a 650k sq ft warehouse under Phase 1 of the Shah Alam Logistics Centre expansion which should allow TASCO to capture warehouse shortage opportunities.

• Following the results beat, we raise FY23-25F earnings by 10-11% as we revise our throughput assumption for the remainder of the year from flattish to positive growth, sustaining its margin following its cost pass- through exercise. Our TP is now based on a lower 17x (from 19x) FY23F P/E (+1.0SD) and incorporates a 2% ESG premium. Key risks: Weaker- than-expected volume recovery and higher-than-expected opex.

Source: RHB Research - 27 Jul 2022