• Still BUY and MYR1.35 TP, 55% upside with c.4% FY24F (Mar) yield.9MFY24 earnings were slightly below expectations as we expect TASCO tobook stronger numbers ahead – supported by a recovery in trade activities,sector tailwinds, contributions from new warehouses, and recognition of taxincentives. Trading at only 7.4x P/E – a discount to local and regional peeraverages of 13x and 20x – its valuation is attractive for a leading integratedlogistics player with diversified business segments, solid cash flowgeneration, healthy dividend yields, and growth prospects.

• 3QFY24 results review. 3QFY24 revenue and net profit stood atMYR277.4m (+1.4% QoQ, -29.3% YoY) and MYR13.8m (-12.8% QoQ, -32.4%YoY). Although we expect a bumper 4QFY24, 9MFY24 core earnings ofMYR43.9m (-36.4% YoY) were below expectations at only 58% of our andconsensus’ full-year estimates – this was due to a weaker freightenvironment and slower trade activities.

• The international business solutions (IBS) segment booked a 3QFY24revenue of MYR109.8m (+24.9% QoQ, -40.6% YoY). This was mainly draggedby the normalisation of freight rates and drop in shipments. TASCO’s airfreight forwarding wing’s revenue for the quarter stood at MYR78.3m(+45.9% QoQ, -30.5% YoY) while ocean freight forwarding’s topline came inat MYR 23.7m (-11.5% QoQ, -63% YoY). This was in line with the country’sweak trade data printed within this quarter under review.

• The domestic business solutions or DBS segment posted a 3QFY24 revenueof MYR167.6m (-9.7% QoQ, -22.3% YoY). The sequential weaker quarterswas attributable to lower contributions from TASCO’s contract logistics (CL)and cold supply chain (CSC) businesses. Within the CL segment, customclearance and haulage sales dropped by 28.1% and 8.3% QoQ on a drop inshipments from solar panel and E&E customers. Despite the decrease in fastfood, poultry, convenient retail, and ice cream customers, CSC revenueremained relatively stable thanks to a new customer secured in 3QFY24.

• Incoming earnings contributions from 4QFY24 and onwards. We maintainour earnings forecast for now pending a post-results briefing and guidance.Besides, we do expect TASCO to record a much better performance in4QFY24 and beyond, primarily supported by: i) Maiden contributions fromnew warehouses (which should fetch wider margins vis-à-vis its currentrented warehouses), ii) tax savings credits from integrated logistics servicesor ILS tax incentive that lowers the effective tax rate to 10-14%, and iii)further pick-up in trade activities within the intra-Asia region. The uptick infreight rates stemming from the on-going Red Sea crisis should serve as atailwind to support TASCO’s IBS segment – which would be reflected in4QFY24 onwards. Our TP is unchanged at MYR 1.35, pegged to 12x CY24FP/E, after incorporating a 2% ESG premium (as its 3.1 ESG score is above thecountry median). Key risks includes loss of key customers and a decline inoperating margins

Source: RHB Securities Research - 30 Jan 2024