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Tuesday, May 27, 2014

TASCO Bhd - Kenanga Still A Good Yielding Play


Share price did well in the past year. Since recommended in our On Our Radar report in January last year, the share price of TASCO did fairly well, rising 29% to RM2.65 from RM2.06, significantly surpassing our previous target price. We noted the change in financial year-end for the company from December to March in 1QCY14. On a comparable basis, for the quarter ending Mar-14, TASCO registered 1.3% decline YoY in net profit due to higher effective tax rate (27.8% vs. 17.2%) despite an 11.7% improvement in revenue. Moving forward, management expects earnings growth to improve on the back of brighter outlook on the import export market.

Strong client portfolio with Japanese inclination. Due to the group’s service quality and parent’s robust global network, TASCO maintains their long-term strong relationship with blue chip clients. According to the management, 64% of their Japanese customers with dominant presence in the global consumer electrical industry have stayed with TASCO for years which provide stability and visibility to the group’s earnings. We believe that the Japanese clients will continue to stay with TASCO in the foreseeable future for its track record of delivering quality standard service.

Rise of online purchasing. Given increasing IT literacy among consumers, online retailing has gained prominence gradually with foreign online retailers like Zalora and Lazada setting up in Malaysia offering products ranging from fashion to electronic products. The local online retailing market is hugely untapped and this trend, in our opinion, will definitely benefit TASCO in the long run as demand for warehouses by the online retailers’ distribution hub may increase. We have also gathered that TASCO is also expanding its warehousing capacity with a c. RM50.0m investment which will bring incremental warehousing space of 200,000 sq ft.

Stable earnings growth ahead. We have imputed 2-year earnings CAGR of 5.5% from FY13 to FY15 driven by strong growth in contract logistics division and international sea freight division. However, this may be partially offset by the trucking division with no growth expected in the trucking division and margins compressed due to fuel price hike which we have factored in our financial model. Our expectations are deemed to be conservative given that management expects the group to grow at high single-digits moving forward with signs of improvements seen in the logistics market.

Still a good yielding play. Although share price had risen 29% in the past year, TASCO’s valuation of FY15 9.3x PER is still reasonable. This is against valuations of FREIGHT’s 12x and small cap’s 11x-12x. We revised our fair value upwards to RM2.79 from RM2.39 previously by pegging forward PER of 10x based on CY14 EPS, implying a total return of 9.8% with potential upside of 5.3% and dividend yield of 4.5%, indicating that the stock is not as attractive as before. Risks to our call include: (i) further slowdown in global economy and (ii) higher-than-expected cost pressure in the trucking business.

Source: Kenanga

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