New Business Wins Across Multiple Industries with Consistent Earnings, “Buy” on TASCO: RHB IB

RHB Research had a post-results conference call with TASCO’s management and came away feeling confident about the group’s performance in the coming quarters, despite concerns surrounding freight rate normalisation. The research house expects its near-term performance to be underpinned by robust trade flows – in spite of the slowing global economy – as well as new business wins across multiple industries, and the Integrated Logistics Solutions (ILS) tax incentive booster, which should support earnings.

Hence, the research house has given a “BUY” rating on TASCO and target price (TP) of MYR1.75, which translates to 102% upside, with 4% yield.

Volumes holding up. Comparing ocean and air freight indices to TASCO’s quarterly PBT proves the sustainability of its international business solutions (IBS) segment’s performance, despite the continuous drop in freight rates. Management guided that the year-end should see ocean freight rates dropping further, but the resulting volume surplus from the new-found affordability should more than mitigate its impact; along with strength in its contract logistics & transport (CLT) segment. It is expected trade flow traction to sustain, with the Department of Statistics reporting that export/import volume indices continued to see an uptrend in Aug 2022 (+27.4%; +52.7% YoY). While the research house remains cautious of the global economic slowdown, the positive total trade locally should result in positive throughput volume growth for TASCO in the near term.

Expansion plans and tax credit allowance underway. The construction of a 650k sq ft warehouse under Phase 1 of the Shah Alam Logistics Centre expansion (to be completed in Oct 2023), which should allow TASCO to capture the warehouse shortage opportunity, while enjoying superior yields in 1HCY24, given the low land cost. Recall that the total ILS capex investment of MYR520m is indicative of MYR75m worth of tax credit over the next 5 years – acting as a boost to TASCO’s bottomline.

Business wins looking promising. For the CLT segment, management believes it will continue seeing major business wins this year, with a target of 80 tenders (higher than last year), primarily from the quick serving restaurant/fast food and oil & gas segments. This will further support its already-diverse client base which encompasses various economic sectors – providing support to its business operations.

The sustainable outstanding performances in the past few quarters highlight the importance of operational excellence and management’s strategy in defying investors’ expectations of an earnings contraction due to
the downtrend in freight rates, which has led to YTD share price underperformance. The stock’s below-peer valuation of 7x presents a compelling investment proposition into the country’s leading integrated logistics player with consistent earnings delivery. RHB keeps its earnings forecasts and TP, which is pegged to 15x FY23F P/E (in line with the
historical mean) and incorporates a 2% ESG premium.

Key risks identified are weaker-than-expected volume recovery and higher-than-expected operating expenditure (opex)

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