• Maintain BUY and MYR1.15 TP, 36% upside with c.3% FY25F (Mar) yield. After attending TASCO’s results briefing, we remain upbeat on its prospects for FY25 and beyond. This is mainly driven by: i) An improving freight forwarding segment, ii) volume recovery, iii) contributions from new warehouses, and iv) available tax credits from integrated logistics services (ILS) incentive. For a leading integrated logistics player, we believe TASCO’s current valuation is appealing, considering its exposure to diverse businesses, robust cash flow generation, and strong growth prospects.

• Improved outlook for freight forwarding despite a weak quarter. 1QFY25 saw a weaker performance within the freight forwarding business. This was mainly dragged by the air freight forwarding (AFF) segment, which recorded 1QFY25 PBT of MYR1.6m (-54% QoQ, -27% YoY) while the ocean freight forwarding (OFF) segment rose 34% YoY (+66% QoQ) to MYR0.7m. The weaker AFF segment was mainly due to TASCO having to honour existing tender contract prices despite rising market buying costs. However, we anticipate better outlook for this segment on the back of better spreads as higher tender prices take effect from July onwards.

• The contract logistics (CL) segment booked 1QFY25 PBT of MYR6.1m (+7% QoQ, -19% YoY), dragged by the lower contribution from a major energy customer who was affected by US sanctions, affecting both customs clearance and warehouse businesses. Regional port congestion has also affected its haulage business due to the inability to offload containers. However, contributions from a new automotive customer should provide support to CL earnings while the impact of port congestion is slightly mitigated as TASCO has started charging trailer detention fees to customers. While there was a one-off non-cash PPE write-off of MYR3.6m related to the demolishing of the old head office building, management does not expect further write-offs on the building in the coming quarters.

• Moving forward, we think both the AFF and OFF units will book stronger earnings in the upcoming quarters, thanks to improved margins resulting from the adjustment of selling prices. On top of that, freight rates are expected to remain elevated in anticipation of the peak season in September- November. We are upbeat on full contributions from the two new warehouses (SALC and WPLC) of 850k sqft while TASCO is set to continue enjoying its ILS tax incentive with an unclaimed tax credit of >MYR32m.

• We make no changes to our earnings estimates and TP post-results briefing. We reiterate our BUY recommendation, supported by TASCO’s volume recovery in the coming quarters. We are upbeat on its future prospects, on the back of a favourable freight forwarding outlook, volume pick-ups, and contributions from new warehouses. Our MYR1.15 TP is 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 - 5 Aug 2024