RHB Investment Bank (RHB IB) lowered its FY24F to FY26 earnings forecasts by 11 to 13% for Tasco Bhd to account for the slow volume recovery and delay in the handover of the Shah Alam Logistics Centre (SALC).
“We cut FY24F to FY26F earnings by 13%, 11%, and 13% respectively, based on lower volumes and delay in SALC contributions, but roll forward our valuation year to FY25F,” it said, adding the earnings were revised after its post-results briefing and site visits with the logistic service provider.
Consequently, the research house lowered its target price (TP) to RM1.19, from RM1.35, 47% upside with 4% FY24F (March) yield.
“Our TP is pegged to 12x FY25F P/E and after incorporating a 2% ESG premium, as the group’s 3.1 ESG score is above the 3.0 country median.
“Trading at only 7.8x price-earning ratio (P/E) – a discount to local and regional peers’ averages of 9.5x and 17.6x – its valuation is still attractive for a leading integrated logistics player with diversified business segments, solid cash flow generation, healthy dividend yields, and
growth prospects.
“Key risks include a loss of key customers and decline in operating margins,” it said in its Malaysia Company Update today (Feb 5).
RHB IB said while it is adopting a more conservative outlook on overall FY24 prospects of Tasco, it stays upbeat on FY25 and beyond, driven by trade activity recoveries, regional business projects, contributions from new warehouses, and higher tax savings credits.
“A final dividend can also be expected in 4QFY24.”
It said among the reason for the revision was the contraction of 9-month profit before tax (PBT) for the group’s contract logistics (CL) segment, which decreases 32% year-on-year (YoY) to RM27.6 million.
“This is mainly due to the deceleration in the movement of outbound cargoes – a consequence of weaker consumer demand and overall trade activities.
“The cold chain wing was rather flattish, with contributions from new customers and higher impact from the recent takeover of Hai San’s warehouse cushioning the decline in business activities from food and retail customers due to the ongoing boycott situation.
“The 270,000 sq ft Westport Logistics Centre (WPLC) Block B is now ready and should be fully occupied by March. While SALC’s construction has been completed, the handover to retail-based customers will only be fully completed by May at the latest.
“We estimate these warehouses will generate additional rental revenue contributions of RM20 to RM23 million and profits of RM11 to RM13 million per annum, with additional potential upside from other services,” it said.
RHB IB said aside from Tasco’s 3QFY24 earnings that came below expectations on a higher effective tax rate and unrealised FX losses, the quarter also continued to witness a decline in shipments and twenty-foot equivalent unit (TEU) volume, in which the latter represents cargo capacity.
“The air freight forwarding (AFF) and ocean freight forwarding (OFF) segments’ 9MFY24 PBT were at RM5.62 million, a decline of 84% and RM0.8 million, or 94% lower respectively, due to the normalisation of freight rates and slower volume.
“The confluence of reduced freight rates and subdued demand persists in eroding the margins of the freight forwarding business.
“Nevertheless, the uptick in freight rates – stemming from the on-going Red Sea crisis – should serve as a tailwind to support Tasco’s international business or international business solutions (IBS) segment, especially AFF.
“This should be reflected from 4QFY24 onwards, in our view.”
