• Maintain BUY and MYR1.15 TP, 28% upside and c.3% FY25F (Mar) yield. 1QFY25 missed expectations due to slower business from the contract logistics (CL) segment and unfavourable FX impact. Nonetheless, we expect better quarters ahead, buoyed by a favourable freight forwarding market, volume recovery, and contributions from new warehouses. TASCO’s current valuation is attractive for a leading integrated logistics player with diversified business segments, solid cash flow generation, and growth prospects. This report marks transfer of coverage to Syahril Hanafiah.

• TASCO booked a 1QFY25 core net profit of MYR10.6m (-40.5% QoQ, -25.3% YoY) – at 15% of our and Street’s full-year estimates, we deem the results as below expectations. The negative deviation was attributable mainly to weaker CL and air freight forwarding (AFF) segments on top of unfavourable FX movements. The AFF wing’s PBT printed MYR1.6m (-54.4% QoQ, -27.4% YoY) despite a 26% YoY jump in revenue. This was mainly on lower margins realised given the lower contract tender prices honoured during the quarter despite rising market buying costs. There was a one-off non-cash PPE write-off of MYR3.6m pertaining to the demolishment of the old head office building, paving the way for the reconstruction of a new warehouse under its Shah Alam Logistics Warehouse or SALC expansion.

• The domestic business solutions (DBS) unit slipped 1.1% YoY to MYR11.6m, mainly dragged by lower CL contributions (-18.7% YoY). This segment saw a significant drop in throughput from a major renewable energy customer due to US sanctions. As a result, its customs clearance and warehouse businesses were also affected (both: -26% YoY combined). However, this was offset by the cold supply chain (CSC) division, which saw a 12% increase in PBT, likely due to newly secured cold chain logistics and dairy products customers.

• Better quarters ahead. Despite a soft start to FY25, we believe both AFF and ocean freight forwarding (OFF) will post stronger earnings in the coming quarters – this is due to better spreads following the revision of selling prices amid the elevated freight rates and stronger demand for urgent shipment and handling. Meanwhile, contributions from a new major automotive customer to the CL business segment’s client base should provide some cushion to the lower contribution by the renewable energy customer. We are also optimistic that the contributions from new warehouses to contribute fully after the delay in cargo movements while TASCO continues to enjoy its integrated logistics services (ILS) tax incentive.

• Earnings revision. We cut FY25F-27F earnings by 3-11% after cutting the CL segment’s margins after considering the lower contributions by major energy customer and upward revisions of freight forwarding earnings. Our TP is maintained at MYR 1.15 as we roll forward the valuation base year to CY25F, pegged to an unchanged 12x P/E. A 2% ESG premium is baked into our TP given TASCO’s 3.1 score vs the 3.0 country median. Key risks include loss of key customers and a decline in operating margins.

Source: RHB Research - 31 Jul 2024