Tasco berhad expect to double up their revenue to achieve 1 billion in FY2019

 

Key highlights

 

-Albeit stagnant, revenue and profit are still considered stable. The company are providing one stop logistics solution, contract logistic division(43%), sea freight (13%), air freight(28%) and trucking service(16%)

-Acquisition of Gold cold logistics (for rm188M) + Mils Cold Chain logistics (for 9.92m) allowed them to venture into cold chain logistics. The acquisition are believed to be a fair deal as it allowed them to become one of the largest cold chain logistics provider in malaysia in term of storage capacity size (25,600 pallets with 174 reefer trucks). The acquisition are expected to be done on April 2017. Mils cold chain has around 10,500 pallet storage capacity for its cold chain business.

-Acquire six parcel of land measuring 39.52 acres over pulau indah, close to port klang. Such acquisition made to expand their warehouse facilities as demand are growing and their existing warehouse are getting fully utilized. 

- Tasco logistic are around 55% owned by Yusen logistic co ltd, which is a Japanese logistic giant company. 

- After the acquisition, Tasco will own 36,100 pallets of storage capacity, or equivalent to 30% of whole market capacity.  

 

 

 

More about Gold Cold and cold chain business

- Gold cold is a profit making company with their revenue at FY2015 at around 67 million and profit before tax at 9.57M. The profit margin are around 14%, which is significant higher than the normal logistic company which usually has only single digit margin. (tasco logistics with its traditional logistic business has only around 8% margin)

- Gold cold has multinational clients and the main things to deliver is fruits, milks, seafood and poultry,frozen fries and etc. 

- Gold cold has net tangible asset of around rm72M

- Given its high margin cold chain business, the cost involved are relatively higher too (eg: normal warehouse cost rm150 per sqft, cold chain warehouse cost rm450 per sqft)

 

 

 

Industry outlook

-The landscape of Malaysia logistics industry are getting more and more saturated as the major player in the industry find it hard to grow their business. In order to grow, acquisition of new company or expand business to oversea market are another solutions. A lot of acquisition had been going on in recent years, from courier service provider Nationwide, to GDEX, and the dispose of 31.44% stake of Century Logistics to CJ Korea EXpress Asia. 

-Increase popularity of e-commerce can help to boost the cold chain business. (eg: the trend for urban area citizen to buy organic fruits/vege through online is increasing, and cold chain delivery is a must)

-Pharmaceuticals sales can help to boost cold chain logistics. According to industry report, pharmaceuticals sales in Malaysia will grow in compounded rate of 9.5% yearly and until 2020, the sales will get to 3.2 billion. 

-The import of dairy products, fresh fruits into Malaysia are growing around 10% annually, which is beneficial to cold chain logistics. 

- Malaysia's ambition to become world largest halal food hub is also beneficial to cold chain logistic provider which has halal certification. Gold Cold are one of them. 

 

 

Upside reward

 

-Current PE around 11, NTA RM1.64  and the company management think that it is undervalued. (Tiongnam around 9, Century 18, Freight Management 11 ), the company fix asset haven't been revalued for 10 years.

- Their new venture into cold chain business through acquisition looks promising as cold chain logistic is even harder to do. By acquisition, they can leverage on Gold Cold expertise, technology and network which i think is way better than they starting from zero. 

- If they can successfully grow its cold chain business, i have reason to believe that their PE valuation will increase as well, having see the other big cold chain logistic company have their PE above 20. (eg: Japan Nichirei Corp, India Snowman Logistic, Thailand Jwd ) 

- Leverage on the coming 2020 Japan organised Olympic, as some of the suppliers for Olympic 2020 are Tasco's existing clients.

 

Downside risk

-Post acquisition, the gearing ratio will increase from 0.14 to above 1. The funds will come from borrowing, or possibly through private placement (issue shares to private investor). More debts mean riskier if economic turns out badly ( FEd's interest rate hike, US economy policy, Malaysia economy, General election effect or subsequent new policy)

-Logistic business are sensitive to word economic, fuel prices (30% of their cost) and certain sector's performance.  

-Unable to manage the new cold chain logistics business. (which i think is unlikely as they used to involve in this business through third party cold chain logistic provider before)

 

*All information are retrieved from reliable sources and the author did provide some opinion.