TASCO’s Diversified Business Model Helped Sustain Earnings: RHB

TASCO’s financial year 2023 March earnings came in at RM90.8 million, meeting RHB Research (RHB)’s expectations as well as street expectations at 97% and 102%.

Quarter four 2023 revenue fell 32.1% quarter-on-quarter, mainly dragged by significantly lower freight rates that caused the International Business Solutions segment’s profit before tax to drop 49%, said RHB in the recent Small Cap ASEAN Research Report.

Nevertheless, its diversified business model helped sustain earnings for the quarter, on top of a more prominent impact from the Integrated Logistics Solutions segment’s tax incentive, which sustained its overall profitability.

The Domestic Business Solutions segment was lifted by contract logistics’ 10% year-on-year growth, supporting the weaker performance of IBS and the cold supply chain.

The new business division within IBS, supply chain solutions, saw a 75.9% year-on-year growth to RM30.8 million due to its strong global presence which enabled it to expand into the fourth-player logistics space.

While the freight segment’s revenue for logistics players should fluctuate due to softening rates, bottomline should be cushioned by its ability to lock in ocean freight rates with its customers and its negotiations with shipping lines for better margins and volume certainty.

This would help provide some earnings visibility compared to the elevated freight rate era when it was mostly short-term arrangements. Also, the new warehouse spaces in Westport and Shah Alam will be ready by Nov 2023 and Jan 2024 to provide growth catalysts for the group in financial year 2024 and financial year 2025.

Key risks identified by RHB include weaker-than-expected volume recovery, loss of key customers, and higher-than-expected operating expenses.

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