RHB is in the opinion that TASCO is a Stay BUY stock with a revised RM1.90 Target Price from RM2.14, 60% upside, and 2.5% FY23F yield.
The stock house expects TASCO to book a robust YoY growth in the upcoming 4QFY22 (Mar) results from strong performances underpinned by buoyant volume throughputs and favourable freight rates. RHB continues to like the firm for its undemanding valuation and positive earnings momentum despite COVID-19-related challenges. This is alongside multiple growth avenues driven by capacity expansions, tax incentives, and forays into new markets, eg food retail, healthcare, and e-commerce.
Following the traction seen in 2021, the Department of Statistics Malaysia reported that export and import volume indices continued to see uptrends in January (+7% and +18% YoY) and February (+0.3% and +10.1% YoY). This is further complemented by the projected 5.3-6.3% GDP growth for 2022, driven in part by gross exports that are projected to grow by 10.9%. With the impending broader economic reopening, we can expect stable growth in volume throughputs to be a boon for an integrated logistics solutions provider like TASCO.
The tightness in air and ocean freight markets is expected to persist in view of port congestion (now in Los Angeles and more recently in Shanghai). This points to a positive outlook for TASCO’s freight forwarding segment, as freight rates remain elevated and are further supported by the demand from a diverse clientele base across various economic sectors – namely its sizable exposure to the electrical & electronics segment (attractive in the continued technology upcycle) and new business wins. We think TASCO’s ease of access to in-demand cargo spaces – in the face of a supply chain disruption – to meet customers’ urgent shipping needs and backing from NYK Line’s logistics network puts it on a path towards steady volume growth.
Results preview. Results are to be released on 28 Apr. We expect TASCO to continue its strong growth momentum and end FY22 with record earnings. Underlying operations are buoyed by the strength of its contract logistics solutions, as well as the robust growth for ocean and air freight forwarding, which are leveraging on the elevated freight rates. Besides, tax
savings from its integrated logistics services scheme are also expected to kick in from this quarter onwards.
Keep BUY. RHB leaves its earnings estimates unchanged, maintaining a conservative stance. Target Price is now pegged to a 19x target P/E from 22x on FY23F EPS (+1SD above its 5-year mean) after taking into account the rising yield environment and higher risk premiums related to external events. It also includes a 2% ESG premium. At 11.6x forward P/E, the stock trades at an undemanding multiple to its historical mean and regional 3PL peers.
Downside risks to the call: Weaker-than-expected recoveries in freight volumes and higher-than-expected opex
