Tasco Berhad - Warehousing to drive growth in 2026
Mon, 05-Aug-2024 08:13 am
by Jayden Tan • Apex Research

Counter

TASCO (5140)

Target Price (RM)

1.00

Recommendation

Buy

  • Lower margin from freight forwarding due to tender commitment with customers. We came away feeling reassured post meeting with Tasco management as current updates aligned with our expectations. Lower margin from their Air freight forwarding business that offset higher international freight rates was due to tender commitment with two customers, preventing price adjustments to match the uptick in freight rates. The move aims to maintain strong customer relationships between these parties. However, Tasco plans to increase spot contracts with customers for the freight forwarding business to better manage fluctuations in freight rates. For the upcoming three-month, Tasco has included a buffer percentage into tender contracts with the two customers to mitigate the impact of potential freight rate increases.
  • Domestic Business solutions. Tasco's Domestic Business Solutions was impacted by multiple headwinds, including port congestion, which resulted in inefficiencies over the haulage and trucking business. Additionally, pro-Palestine activities and geopolitical tensions led to reduced business volumes from certain customers.
  • Warehousing segment. The construction costs for the new four-storey, 400,000 sqf warehouse have significantly increased due to higher material costs. However, we were guided that this will not be a major concern over future occupancy rate as some customers are currently using outsourced warehouses. At present, the pricing for their SALC warehouse is RM2/sqf per month.
  • Low effective tax rate. The Group currently possesses unutilised tax credits c.RM30.0m from previous investments. With that, we anticipate the Group will maintain its effective tax rate at a low level of c.13% over the next five years.
  • Outlook. We expect to see a recovery in topline and margins in the coming quarters in FY24, as the Group adjusted the prices for freight forwarding services to their tender commitment customers. However, we remain cautious over the freight forwarding business margin, due to the current volatility of international freight rates. Additionally, the anticipated strengthening of the Ringgit against the USD is expected to be unfavorable to the Group, which could impact bottom-line margins. The domestic business is expected to remain flat over the foreseeable future, pending completion of the new warehouse tentatively in 2026.
  • Valuation. We kept our earnings forecast unchanged post-meeting, as the recent updates aligned with our expectations and forecasts. We reiterate our BUY recommendation with an unchanged target price of RM1.00.
Read more details in:

Disclaimer

The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.

Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against Apex Securities Berhad. Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of Apex Securities Berhad.

Market Mover
Settlement Rates
Currency Buy Rates (RM) Sell Rates (RM)
USD 4.449296 4.484012
EUR 4.692599 4.701308
CNY 0.615732 0.616932
HKD 0.571606 0.576092
SGD 3.310067 3.336427