• Keep BUY, new MYR1.19 TP from MYR1.35, 47% upside with c.4% FY24F (Mar) yield. Following our post-results briefing and site visits with TASCO, we lower our FY24F-26F earnings by 11-13% to account for the slow volume recovery and delay in the handover of the Shah Alam Logistics Centre (SALC). While adopting a more conservative outlook on overall FY24 prospects, we stay upbeat on FY25 and beyond, driven by: i) Trade activity recoveries, ii) regional business projects, iii) contributions from new warehouses, and iv) higher tax savings credits. A final dividend can also be expected in 4QFY24.

• Contract Logistics (CL) segment update. The segment’s 9-month PBT contracted 32% YoY MYR27.6m, mainly due to the deceleration in the movement of outbound cargoes – a consequence of weaker consumer demand and overall trade activities. The cold chain wing was rather flattish, with contributions from new customers and higher impact from the recent takeover of Hai San’s warehouse cushioning the decline in business activities from food & retail customers due to the ongoing boycott situation. The 270k sq ft Westport Logistics Centre (WPLC) Block B is now ready and should be fully occupied by March. While SALC’s construction has been completed, the handover to retail-based customers will only be fully completed by May at the latest. We estimate these warehouses will generate additional rental revenue contributions of MYR20-23m and profits of MYR11-13m pa, with additional potential upside from other services.

• Double whammy for the freight forwarding wing. While 3QFY24 earnings came below expectations on a higher effective tax rate and unrealised FX losses, the quarter continued to witness a decline in shipments and TEU volume. The air freight forwarding (AFF) and ocean freight forwarding or OFF segments’ 9MFY24 PBT were at MYR5.62m (-84%) and MYR0.8m (- 94%) due to the normalisation of freight rates and slower volume. The confluence of reduced freight rates and subdued demand persists in eroding the margins of the freight forwarding business. Nevertheless, the uptick in freight rates – stemming from the on-going Red Sea crisis – should serve as a tailwind to support TASCO’s international business or IBS segment, especially AFF. This should be reflected from 4QFY24 onwards, in our view.

• Earnings revision. We cut FY24F-26F earnings by 13%, 11%, and 13% based on lower volumes and delay in SALC contributions, but roll forward our valuation year to FY25F. Consequently, our TP is now MYR 1.19, pegged to 12x FY25F P/E and after incorporating a 2% ESG premium, as TASCO’s 3.1 ESG score is above the 3.0 country median. Trading at only 7.8x P/E – a discount to local and regional peers’ averages of 9.5x and 17.6x – its valuation is still attractive for a leading integrated logistics player with diversified business segments, solid cash flow generation, healthy dividend yields, and growth prospects. Key risks include a loss of key customers and decline in operating margins.

Source: RHB Securities Research - 5 Feb 2024