• Maintain BUY and MYR1.15 TP, 36% upside and c.4% FY24F (Mar) yield. We came away from TASCO’s post-results briefing and site visits remaining upbeat on FY25 and beyond. This is driven by: i) Recovery in trade activities, ii) regional business projects, iii) contributions from new warehouses, and iv) a lower effective tax rate.

• Mixed performance across the freight forwarding (FF) business. Despite elevated rates, the air freight forwarding (AFF) wing’s 4QFY24 revenue and PBT stood at MYR63m (-20% QoQ, -20% YoY) and MYR3.4m (+67% QoQ, -42% YoY) on softer volumes – especially from the E&E and semiconductor sectors. On the flipside, the ocean freight forwarding (OFF) unit posted 4QFY24 revenue and PBT of MYR31.6m (-3% QoQ, +44% YoY) and MYR3.4m (>100% QoQ, -80% YoY), mostly driven by elevated shipments, which compensated the depressed ocean freight rates.

• The contract logistics segment’s FY24 PBT contracted 30% YoY to MYR33.3m – a consequence of weaker consumer demand. The cold chain wing also experienced business activity declines due to the ongoing boycott situation in the consumer sector. Westport Logistics Centre (WPLC) Block B is now fully occupied by a manufacturing customer, with full contributions to kick in from 1QFY25 onwards. While the Shah Alam Logistics Centre (SALC) is now complete, the handover to retail-base customers will only be fully completed by Jun 2024 at the latest. We estimate these warehouses will generate additional annual revenues of MYR50-56m and earnings of MYR10-16m. Based on our latest ground checks, there is a change in SALC’s tenant profile – where Warehouse B (150ks q ft) will now be taken by short- term customers until a potential automotive client moves in by Jan 2025.

• Looking ahead, management is optimistic on the prospects of each business segment. For FF, the tender process is set to take place in the next few months, which should then allow the group to secure more business volumes for both AFF and OFF. While cold chain may remain challenging in the short- term due to the ongoing boycotts, we believe the minimum order quantity should contain the downside risk.

• No changes to earnings and TP. We reiterate our conviction on TASCO, supported by 4QFY24’s recovery signs. We believe the group’s future prospects will be supported by: i) Contributions from new higher-margin warehouses, ii) further tax credit savings, and iii) additional pick-ups in trade activities within the intra-Asia region. Our MYR1.15 TP, pegged to an unchanged 12x FY25F P/E, is in line with its historical mean, after incorporating a 2% ESG premium. The current valuation remains attractive for a leading integrated logistics player with diversified business segments, solid cash flow generation, healthy dividend yields, and growth prospects. Key risks include loss of key customers, trade activity slowdowns, and operating margin declines.

Source: RHB Research - 7 May 2024