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

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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.
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