Tasco Berhad - Sub-par performance
Wed, 31-Jul-2024 08:35 am
by Jayden Tan • Apex Research

Counter

TASCO (5140)

Target Price (RM)

1.00

Recommendation

Buy

  • Results review. In 1QFY25, core net profit declined by 25.5% yoy and 40.6% qoq, after excluding one-off expenses of RM3.6m related to the demolition of an old warehouse. The performance was dragged down by lower margins from the international freight forwarding business due to higher freight rates, as well as increased interest costs and forex losses.

  • Below expectations. The reported results missed our forecast, with core net profit accounting for only 13% of both our and the consensus's full-year forecast. The variance was mainly due to lower bargaining power with customers from higher freight rates and lower than expected revenue from the domestic business.

  • Operations Highlights. Tasco’s International Business Solutions (IBS) pre-tax profit declined by 31.9% yoy and 45.6% qoq, primarily due to lower margins resulting from higher buying costs compared to the bid price of customer contracts. The Domestic Business Solutions (DBS) segment experienced a decline in revenue for the quarter, down 10% yoy and 11.2% qoq, mainly due to decline in shipments from a major energy customer affected by US sanctions. Nevertheless, despite the lower revenue, the Group managed to maintain flattish bottom line in DBS with better margins, supported by improved warehouse occupancy.

  • Industry Highlights. Despite the recovery in trade activities and the E&E sectors, the industry’s operational landscape remains challenging, due to global geopolitical tensions, volatile freight rates, prolonged high interest rates, and inflationary pressure.

  • Outlook. We adopt a more cautious outlook heightened challenges as mentioned above. However, we remain optimistic about the development of the Group's warehouse capacity, which is expected to create synergistic effect and drive sales in other business segments over the foreseeable future.

  • Valuation. We trimmed our earnings forecast for FY25F and FY26F to RM64.2m and RM72.5m, representing a reduction of 20% and 26% respectively. This adjustment reflects our lowered expectations for revenue from the DBS segment, as well as reduced forecasts for warehouse rates and margins in the IBS segment. Post earnings revision, we maintain our BUY recommendation on Tasco with a lower target price of RM1.00, while we rollover our valuation metrics to FY26F.

  • Risk. Slower than expected on the global economic and inflationary pressure which results in sluggish demand.
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