TASCO MK, (Maintain BUY, FV RM2.48, Last Close, RM2.11)

On Tuesday, we attended the briefing by TASCO as part of the Investor Relations Day co-organized by Malaysia Investor Relations Association and ZJ Advisory. The briefing reaffirmed our view of  TASCO  as  the top pick in  our  Logistics universe for its:  (i) healthy growth in its sea and air freight business, (ii) expanding 3rd Party Logistics volume  from its existing clients, and (iii) low PER, at 6x FY12 EPS vs the industry average of 7x. We keep our BUY call, but upgrade our FV from RM2.33 to RM2.48, pegging the stock at a slightly higher PER of 7x, which is in line with the industry average PER, from 6.5x previously.

Volume growth to stay strong. In tandem with the global economic recovery, and the receding risk of a double-dip global recession, we gather that domestic trade activities as well as in that in the Asian region  are improving. As can be seen in Figures 2 and 3, exports to Japan, Asean and US improved by 25%, 20% and 9% y-o-y respectively. Leveraging on its Japanese major shareholder, NYK Group’s global logistic network and expertise, we continue to like TASCO, which is  well-positioned to ride on the revenue growth, boosted by increasing shipments  and the provision of total logistics solutions. We also expect  its  shipments of LCD and  plasma TV to pick up strongly in 2HFY12 owing to the upcoming 2012 Olympics and Euro 2012. Note that  in 2010,  TASCO’s earnings  soared  134% to RM23.4m  on the back of  urgent air freight shipments of TV sets during the World Cup in South Africa.  Elsewhere, we are positive on the group’s auto CBU division, which provides  Auto Pre-Delivery Inspection (Auto PDI) to Honda, Ford, VW and Volvo.  Although this division’s  earnings  contribution to the group is still relatively small, we are optimistic that it will flourish should Honda’s plans to localize and expand its production in Malaysia materialize.

3PL still  the main growth engine. We think the steady expansion of production by its existing clients, mainly MNCs in the fast moving-consumer good business and E&E products with strong brand names, will ensure the group continues to record healthy growth in its high-margin total logistics division. Total logistics involve the provision of comprehensive solutions encompassing warehousing services as well as air, sea and land freight services. We also gather from management that it saw some urgent contract logistics shipments of E&E and FMCG products in 1Q, particularly from Feb-Mar. Hence, as we believe the group will continue to register better y-o-y numbers, we are optimistic on its upcoming 1Q results due to be announced on 3 May.

Source: OSK188