TASCO - Expecting a Stronger 2H

TASCO continues to be our top pick within the logistic sector. The group’s 1HFY12 revenue and earnings of RM226m and RM14m respectively were largely in line with our expectations. We roll over our valuations to FY13 and maintain our BUY call with FV increased to RM2.56 from RM2.48, pegged to 7x FY13 earnings. We are bullish on its contract logistics business, which is stable and risk-free, as it largely involves long-term contract logistics signed with MNCs for the provision of comprehensive logistics solutions. The stock is currently trading at an undemanding 6x FY12-13 earnings, which we deem cheap compare to the industry average of 8x.

In line. TASCO’s 1HFY12 revenue and core earnings of RM226m and RM14m were in line with our forecasts, and respectively represent 43% and 40% of our full year estimates. The group continues to be driven by its domestic business solution, which has registered a healthy 3% growth YTD. Though the group’s revenue were flat on a quarterly basis owing to seasonal factors, its PBT and core earnings registered decent growth of 3% and 9% respectively, thanks to prudent costs control coupled with strong revenue and profitability growth of 20% and >100% respectively in its trucking division, which saw strong volume in the Malaysian-Thai border area and an expansion in its clientele base over the quarter.

Business segments review. On a YTD basis,the group’s biggest revenue contributor, Contract Logistics, saw a marginal 2.3% fall in revenue, no thanks to the weakness in sales of custom brokerage. Likewise, its 2^nd largest revenue contributor, the air freight division, slid 7% y-o-y in revenue due to lower export volume. However, its 3^rdlargest revenue contributor, sea freight, registered strong 9.5% y-o-y revenue growth. TASCO’s high margin segment, Auto CBU, continues to grow healthily, seeing a strong pick up in the number of imported cars coming in to the country. We also gather that the group has managed to expand its clientele base within this segment and its current warehouse space for this division is 100% utilized.

Outlook still healthy. We understand that TASCO’s 2m sq ft warehouses are currently 100% full. (The largest warehouse space among the logistics players in the country.) The group has decided to expand its warehousing division by adding a total of 770,000 sq ft of warehouse space in a few strategic locations such as Shah Alam, East Malaysia and PTP. It needs the capacity expansion to meet additional requests from its existing contract logistics clients, mainly FMCG and E&E companies, which are aggressively expanding their production and hence increasing their demand for total logistics services.

Maintain BUY and Top Pick. We believe the group’s will record strong top and bottom line earnings upcoming 3QFY12 results, judging from the strong orders it has received from its contract logistics clients. We are maintaining our forecast and BUY call, with a new FV of RM2.56 based on 7x FY13 PER.

Source: OSK