Tasco’s growth momentum to continue until mid-2022

This article first appeared in The Edge Malaysia Weekly, on November 1, 2021 - November 07, 2021.
Tasco’s growth momentum to continue until mid-2022
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WITH freight rates projected to remain elevated for a number of quarters, Tasco Bhd is poised to register record-breaking earnings this fiscal year, especially after posting a stellar set of figures for the July to September period (2QFY2022).

JF Apex Securities logistics analyst Jayden Tan is of the view that the logistics solution provider will remain resilient in 3Q and 4QFY2022, as well as the start of FY2023. “That is because high freight rates are expected to continue through mid-2022,” he tells The Edge.

Freight rates have certainly shot up as the Drewry World Container Index, which measures the cost of shipping a 40ft equivalent unit container on eight major routes to/from the US, Europe and Asia, had surged a whopping 276% from a year ago to US$9,669.47 last Thursday.

Tan has raised his net profit forecasts for Tasco’s FY2022 and FY2023 to RM58.9 million and RM57.3 million respectively, from RM53.3 million and RM54.3 million, in line with the upward revision in revenue forecasts for the air freight forwarding (AFF) and ocean freight forwarding (OFF) businesses under the company’s international business solutions segment (IBS), as well as the rental rate per sq ft for the warehouse business under its domestic business solutions (DBS) segment.

Having said that, he thinks the current share price has factored in all the positives and that profits could taper off moving forward as freight charges normalise. He has a “hold” call on the counter, with a target price of RM1.25.

RHB Research, however, is of the view that Tasco’s shares are trading at an undemanding, below-peer valuation, which presents a good entry point into an established third-party logistics player with a strong international presence and multiple growth avenues. The research house believes the company will maintain its growth momentum, underpinned by stronger throughput and contribution from its new projects.

“We raise FY2022-24 earnings by 6.5% to 8.2% after factoring in higher contribution from the IFF (international freight forwarding) segment, while taking into account the higher tax rate this quarter,” it said in an Oct 28 note, which came with a higher target price of RM1.94.

MIDF Amanah Investment Bank Bhd research head Imran Yassin Yusof foresees freight rates remaining at a buoyant level next year, given that trade activities will be trending upwards post-reopening of the global economy.

“Looking at the trade performance, certainly the high rates are sustainable for now. Maybe they will start normalising in 4Q2022, depending on how fast the supply chain backlog and bottlenecks can be cleared up,” he tells The Edge.

The key risk is a faster-than-expected normalisation in freight rates, he reckons, but that is likely to be partly mitigated by continued strong demand. He has maintained his “buy” recommendation on Tasco, but with a higher target price of RM1.65, from RM1.47.

In FY2021, Tasco’s net profit jumped more than fourfold to an all-time high of RM41.27 million from RM8.89 million a year ago because of higher contribution from its IBS segment. Other growth drivers were the escalation in shipping rates as a result of the spike in demand for air freight and sea freight services, coupled with reduced industry supply on the back of the pandemic.

In 2QFY2022 — its latest quarter — earnings were also impressive, expanding 46.58% to RM15.69 million from RM10.7 million in the previous corresponding quarter. Cumulative six-month earnings swelled to RM31.45 million, a surge of 135.81% from RM13.34 million a year earlier.

Domestic solutions segment to remain key contributor

Tasco has 26 logistics centres in Malaysia, and Tan expects the DBS segment to continue to account for the bulk of earnings because of the stiff competition in the global arena. In 1HFY2022, profit before tax (PBT) for the segment expanded 69.3% to RM28 million, while that for the IBS segment leapt 137.6% to RM20.1 million.

Analysts say they do not know whether Tasco has bagged any vaccine delivery jobs thus far. At the time of writing, the company had not responded to queries from The Edge.

However, early this year, Tasco entered into a memorandum of understanding with MAB Kargo Sdn Bhd (MASkargo) to collaborate in end-to-end logistics delivery services for Covid-19 vaccines all over Malaysia. In August, the company said it had received enquiries regarding the transport of vaccines from potential customers locally and abroad. But there has been no further update.

The cold supply chain division, parked under the DBS segment, registered a 29.7% decline in PBT in 1HFY2022, owing to an increase in non-operating expenses.

Tasco is a 55.37%-owned subsidiary of Yusen Logistics Co Ltd which, in turn, is a subsidiary of Japan-listed Nippon Yusen Kabushiki Kaisha. Tasco’s share price has doubled year to date, closing at RM1.28 last Friday, which translates into a market capitalisation of RM1.024 billion for the company.


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