Tasco hosted its quarterly results briefing yesterday. MIDF Research has gleaned some of the highlights from the briefing:-
Volume to support normalising freight rates. The average air freight rates to major destinations currently are only about 2x higher, while average ocean freight rates are slightly lower than its 2019 levels. The reason for the latter is the drop in rates for major trade lanes in the U.S. as ocean carriers rebalance vessel capacity to weakening demand.
Fortunately for Tasco, the normalisation of freight rates is being largely offset by the increase in handling volume as ocean freight rates are more affordable now and the Group is looking into locking in the favourable rates for 1HCY23.
Further boost from ITA. Recall that Tasco was granted investment tax allowance (ITA) of 60% on its qualifying capital expenditure (capex) since Aug-21 until Jul-26. Major claimable tax credits in the near-term will be derived from its two new warehouses, i.e. the 620,000 sq ft 4-storey Shah Alam Logistics Centre (SALC) which is slated to complete in Jan-24, and the 250,000 sq ft West Port Logistics Centre (WPLC) which is expected to be handed over in December 2023.
There are about 2-3 prospective customers that intend to fully take up the warehousing space in SALC, of which the commercial terms are still under negotiations.
Managing recessionary risks. Although the general downtrend in market freight rates is not a big concern, the management remains cautious of the growing recessionary risks which could impact its throughput.
The Group plans to reduce its third-party outsourcing for the contract logistics division (CL) and highly utilise its in-house assets in the case of a sudden drop in volume. Currently about 30% of its businesses are being outsourced to other third-party logistics providers (3PL).
MIDF has reiterated its BUY rating on TASCO. Post-briefing, the research house makes no changes to its earnings estimates, and thus it has maintained its BUY call on Tasco with an unchanged target price (TP) of RM1.87 (FY24F EPS pegged to PE of 16x).
The stock is trading at an attractive forward PE of 8.3x, representing a -52% discount to its historical mean.
Downside risks identified include inflationary pressure on their operating costs; and slower recovery of volume for its freight business.
