Tasco Berhad - A potential expansion spree?

INVESTMENT MERIT

- A potential expansion spree? Local logistics companies have been on our radar of late after talks of potential M&As resurfaced last November. Market share cannibalisation and unhealthy price wars within the industry had brought the growing need for a consolidation in the sector in our view. CENTURY had also previously declared that it was looking for a potential M&A target. Our recent check with both FREIGHT and TASCO’s management indicate that they are keen to expand via a similar route.

- TASCO’s strategy. In particular, TASCO’s management is guiding that they are looking for expansion opportunities within the higher value-added services of freight forwarding including warehousing and cold chain logistics in the central region.  Expansion to the non-Japanese customer segment (which currently account for about 36% of its customer base) is also a key strategy for the group and we believe that this could be achieved via a synergistic M&A with local industry players. 

- Margin Expansion. Depsite reporting a lower revenue of RM338.0m (-4.9% YoY) in 9M12, its net profit has  impoved by 2.4% YoY to RM21.2m owing to the better margins at both its domestic and international business solution segments. We expect TASCO’s improving margin trend to continue,  and as such, we are projecting a 11.0% YoY earnings growth to RM37.9m in FY13, translating into an EPS of 37.9 sen. 

- High dividend yield. The group has been consistently paying out 35% of its net profit as dividend since its listing in 2007. Going forward, we expect TASCO to maintain this dividend payout ratio, which implies a decidend yield of 6.7% in FY13.  

- 17% upside potential. TASCO is currently trading at an undemanding FY13 PER of 5.4x as opposed to the sector’s average PER of 6.3x. In view of the group’s diversified customer base coupled with its higher-than-industry dividend yield, we believe that the company should trade at least on par with the sector’s average PER. Hence, we are valuing TASCO at RM2.39 based on a targeted FY13 PER of 6.3x.  

SWOT ANALYSIS

- Strengths:  Ability to leverage on NYK group’s international network of 827 vessels and 29k employees.

- Weaknesses: High dependence on the E&E industry, which contributed 46% of its FY11 revenue. 

- Opportunities:  Ability to expand warehouse capacity at the company’s 5 acre land at the fast-growing port of Tj Pelepas. Existing 2,000,000sq ft of warehouse capacity is 100% utilised.

- Threats: General weakness in external demands, which may lower its air and sea freight margins.

TECHNICALS

- Support: RM1.90 (S1), Resistance: RM2.12 (R1)

- Comments:  TASCO's technical picture is neutral to mildly bullish. We expect the stock to make its way towards RM2.12  where some resistance would likely be present.

BUSINESS OVERVIEW

TASCO has more than 35 years industry experience and was listed on Bursa Malaysia in 2007. The company is one of the largest logistic solutions providers in Malaysia with more than 1,500 employees and more than 35 operation centres locally. TASCO is a subsidiary of Yusen Logistics Co. Ltd., which in turn is a subsidiary of Nippon Yusen Kabashiki Kaisha (NYK Group).

TASCO provides total integrated logistics solutions which include multimodal transportation services by air, sea and land as well as multipurpose logistics solutions on both the international and domestic fronts. The company’s subsidiaries are involved in the business of truck rental, in-house truck repair and maintenance, insurance agency services and warehouse rental as well as provision of services related to freight forwarding.

BUSINESS SEGMENTS

TASCO’s logistics solutions comprises the following core business divisions (FY11 contribution by revenue): 

- Contract Logistics (45%) – Warehouse Division, In Plant Division, Haulage Division, Customs Clearance Division and Auto CBU Division.

- Air Freight (34%) – International Air Freight Division.

- Trucking (14%) – Trucking Division.

- Sea Freight (7%) – International Sea Freight Division and International Network Solutions Division.

Source: Kenanga