• Maintain BUY, new MYR1.35 TP from MYR1.33, 68% upside with c.4% FY24F (Mar) yield. Following our conference call with TASCO, we adopted a more conservative outlook on overall FY24 prospects, owing to subdued consumer spending and sluggish macro trade activities – despite a better HoH expectation built-in on seasonal factors and recognition of tax incentives. We lower our FY24 earnings to account for the slow volume recovery due to the weak macro environment and potential delay in the handover of the Shah Alam Logistics Centre (SALC).

• Double whammy for freight forwarding business. The air freight forwarding (AFF) and ocean freight forwarding (OFF) segments’ 1HFY24 PBT were at MYR3.57m (-85.3%) and MYR0.8m (-91.6%) due to the normalisation of freight rates and slower volume. Certain routes have seen freight rates trend lower than pre-pandemic levels. However, 1HFY24 also witnessed a decline in shipments and TEU volumes, primarily attributable to challenges in US-China shipments, supply chain issues in the aerospace industry, and consumer spending. The confluence of reduced freight rates and subdued demand persists in eroding the margins of the freight forwarding business. Looking ahead, management anticipates relatively stable freight forwarding volumes in 2HFY24.

• Slowdown in movement of goods affected the contract logistics (CL) segment, with the segment’s PBT plummeting 24.1% YoY to MYR17.8m. The downturn is attributed to lacklustre performances across the custom clearance, warehouse, e-commerce, and haulage businesses. Margin erosion was primarily from the slower-than-anticipated warehouse and inplant activities, which saw a 31% YoY decrease. This was mainly due to the deceleration in the movement of outbound cargoes – a consequence of weaker consumer demand and overall trade activities.

• Warehouse progress update. The 250k sq ft Westport Logistics Centre (WPLC) is set to begin operations in December. While the 600k sq ft 4-storey SALC is on course for completion by Jan 2024, there could be a delay in the handover to retail-base customers due to the Lunar New Year festivities. As such, we now only expect contribution from SALC to fully kick-in from 1QFY25 onwards. We estimate that these warehouses will generate additional profit of MYR10-16m pa. This, coupled with the ILS tax incentive – which would reduce TASCO’s effective tax rate to 9-14% – should fuel growth for FY25F.

• Earnings revision. We cut FY24F earnings by 11% based on lower volumes and the delay in SALC’s contribution, but roll forward our valuation year to CY24F. As a result, our TP is now MYR 1.35, pegged to 12x CY24F P/E, after incorporating a 2% ESG premium (as TASCO’s 3.1 ESG score is above the country median). Trading at only 7.4x P/E – a discount to local and regional peer averages of 13x and 20x – TASCO’s valuation is attractive for a leading integrated logistics player with diversified business segments, solid cash flow generation, healthy dividend yields, and growth prospects into FY25F.

Source: RHB Securities Research - 22 Nov 2023