Tasco Berhad - Site visit to new expanded SALC warehouse
Tue, 07-May-2024 08:01 am
by Jayden Tan • Apex Research

Counter

TASCO (5140)

Target Price (RM)

1.12

Recommendation

Buy

  • SALC warehouse. During our recent visit to Tasco's newly expanded 4-storey SALC warehouse, we gathered that phase 1 expansion of the SALC warehouse has been fully leased out to customers with long-term contracts with the exception of level 2, which currently accommodates some short-term contract customers. Tasco is currently in negotiations with a potential sizable automotive customer and anticipates occupancy to commence in January 2025.
  • Refurbishing old HQ. Plans to demolish the old HQ office located on the same premises to make way for an extension of the phase 2 warehouse will bring a total of 40,000 sqm of floor space. Construction of the extension is expected to commence in June 2026.
  • Warehousing segment. WPLC Block B space has been leased to a Japanese based electronic musical instruments customer. However, in 4QFY24, warehousing operation reported lower margins and bottomline, attributed to the transitional phase of relocating customers' cargo into the new warehouse. Performance is expected to improve over the foreseeable future as operations stabilised. Warehouse expansions is expected to create synergies and business opportunities across other segments. Furthermore, Tasco is exploring opportunities within specialist storage warehouses, such as cold storage for semiconductors and Dangerous Goods (DG) warehouses. Looking ahead, the Group intends to leverage existing land bank to further expand warehouse capacity.
  • Freight forwarding. We've observed an uptick in the freight forwarding industry, particularly in April and May, fuelled by increased activity and rate surges, notably in air freight. However, the growth in air freight forwarding may be limited on customers’ preference towards sea freight, despite longer lead times caused by the Red Sea crisis. This trend is primarily driven by sluggish demand in Europe.
  • Struggling in Cold Supply Chain. To recap, Tasco reported lower qoq revenue and margin in 4QFY24 from Cold Supply Chain business, primarily due to the losses from one retail store customer at end 2024. Also, boycott movement led by pro-Palestinian activists resulted in decreased demand from Tasco's fast-food customers. We expect the abovementioned segment operations to remain challenging.
  • Low effective tax rate. The Group currently possesses unutilised tax credits c.RM32.0m from previous investments. As a result, the Group could maintain their effective tax rate at a low level of c.13.0% over the next five years. Hence, we reckon the Group's bottomline margins are expected to remain fairly stable.
  • Valuation. No change to earnings forecast at RM81.7m and RM105.1m for FY25F and FY26F respectively. Re-iterate BUY recommendation with unchanged target price of RM1.12.
  • Risk. Slower than expected on the recovery of global economic and trend of deglobalisation dampened IBS segment. Domestic side, Inflationary pressure and subsidy rationalisation in Malaysia causing slower economic demand.
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