RHB, in its Malaysia Results Review note today (Jan 30), said Tasco Berhad’s 9MFY24 earnings were slightly below expectations as RHB expected TASCO to book stronger numbers ahead – supported by a recovery in trade activities, sector tailwinds, contributions from new warehouses, and recognition of tax incentives.
Trading at only 7.4x P/E – a discount to local and regional peer averages of 13x and 20x – its valuation is attractive for a leading integrated logistics player with diversified business segments, solid cash flow generation, healthy dividend yields, and growth prospects.
RHB maintains Still BUY on the counter and MYR1.35 TP, 55% upside with c.4% FY24F (Mar) yield.
3QFY24 results review
3QFY24 revenue and net profit stood at MYR277.4m (+1.4% QoQ,-29.3%YoY) and MYR13.8m (-12.8% QoQ,-32.4% YoY). Although we expect a bumper 4QFY24, 9MFY24 core earnings of MYR43.9m (-36.4% YoY) were below expectations at only 58% of our and consensus’ full-year estimates – this was due to a weaker freight environment and slower trade activities.
The international business solutions (IBS) segment booked a 3QFY24 revenue of MYR109.8m (+24.9% QoQ, -40.6% YoY). This was mainly dragged by the normalisation of freight rates and drop in shipments.
TASCO’s air freight forwarding wing’s revenue for the The international business solutions (IBS) segment booked a 3QFY24 revenue of MYR109.8m (+24.9% QoQ, -40.6% YoY). This was mainly dragged by the normalisation of freight rates and drop in shipments. TASCO’s air freight forwarding wing’s revenue for the quarter stood at MYR78.3m (+45.9% QoQ, -30.5% YoY) while ocean freight forwarding’s topline came in at MYR 23.7m (-11.5% QoQ, -63% YoY).
This was in line with the country’s weak trade data printed within this quarter under review.
The domestic business solutions or DBS segment posted a 3QFY24 revenue of MYR167.6m (-9.7% QoQ, -22.3% YoY). The sequential weaker quarters was attributable to lower contributions from TASCO’s contract logistics (CL) and cold supply chain (CSC) businesses.
Within the CL segment, custom clearance and haulage sales dropped by 28.1% and 8.3% QoQ on a drop in shipments from solar panel and E&E customers. Despite the decrease in fast food, poultry, convenient retail, and ice cream customers, CSC revenue remained relatively stable thanks to a new customer secured in 3QFY24.
Incoming earnings contributions from 4QFY24 and onwards.
RHB maintains their earnings forecast for now pending a post-results briefing and guidance as they expect TASCO to record a much better performance in 4QFY24 and beyond, primarily supported by: i) Maiden contributions from new warehouses (which should fetch wider margins vis-à-vis its current rented warehouses), ii) tax savings credits from integrated logistics services or ILS tax incentive that lowers the effective tax rate to 10-14%, and iii) further pick-up in trade activities within the intra-Asia region.
The uptick in freight rates stemming from the on-going Red Sea crisis should serve as a tailwind to support TASCO’s IBS segment – which would be reflected in 4QFY24 onwards.
RHB’s TP is unchanged at MYR 1.35, pegged to 12x CY24F P/E, after incorporating a 2% ESG premium (as its 3.1 ESG score is above the country median). Key risks include loss of key customers and a decline in operating margins.
