This article first appeared in The Edge Malaysia Weekly on March 26, 2018 - April 1, 2018

MANY logistics players venture into delivery or courier services to grab a share of the e-commerce pie. Tasco Bhd, however, has chosen a different route to develop a new income stream.

“[It is] not that we will never go into last-mile delivery services. It is because, at that point in time, we were presented with two opportunities — either invest in last mile or go with the cold chain business — and we decided to take the route less taken by many of the companies,” says managing director Freddie Lee Jiew Kiat.

With the cold chain business under its belt, Tasco can now take another big step forward to broaden its presence along the logistics chain.

The company has formed a partnership with Yee Lee Corp Bhd. When Tasco announced the joint venture last December, many had expected it to provide logistics and warehousing services to Yee Lee, which owns an extensive trading business and is a major shareholder of Spritzer Bhd.

However, the JV, which is called YLTC Sdn Bhd, involves more than just that.

“We are proposing something new to the market. Under the JV, we will represent our customers in dealing with their vendors. So, our clients will only have to deal with one party, which is us,” says Freddie. “This makes things easier for them.”

He adds that the group will also provide inventory management, warehousing and logistics services.

It is targeting petrol kiosks, convenience stores, and food and beverage outlets, among others. Already, the JV has secured two major clients.

“With the system, we will be able to tell our customers the inventories they will need, the supplies in the neighbourhood and the area where the retail stores operate. We will also be able to recommend what they will need on a real-time basis,” says Freddie.

The charges will be based on volume. With most of the products being fast-moving consumer goods (FMCG), it reduces the risk of holding too much stock. Tasco finance director K Y Tan says the turnaround of the stock will also be agreed upon to ensure the risk and cost of holding on to inventory are minimal.

“This is the first time that a third party is not representing the seller side (vendors such as Coca-Cola or a specific brand). We are representing the buyer to negotiate with over 150 suppliers of different goods,” Freddie says, adding that it is also the first time that a supply chain company is involved in providing such a service together with a trading partner.

Tasco holds a 40% stake in the JV, with the remaining 60% held by Yee Lee Trading Co Sdn Bhd, a wholly-owned subsidiary of Yee Lee.

Since the JV is an associate company, Tasco will not be consolidating YLTC’s earnings in its accounts. Nonetheless, the logistics solutions that the JV will need will be provided by Tasco, which will contribute to its earnings going forward.

Freddie says the new venture will differentiate the group from other logistics companies, giving it an edge over its competitors.

“This is an area where we see a better future in the consumer market. Yee Lee is the best partner [for us] in this area because it has the expertise in trading,” he adds.

Warm response to cold chain operation

Tasco’s share price came under selling pressure last year when it announced the RM188 million acquisition of Gold Cold Transport Sdn Bhd as the deal was perceived by some as pricey and it would have to borrow a substantial amount.

To the top management, this is money worth investing in for future growth. In fact, Tasco is already reaping the synergistic benefits of the purchase, on top of taking over Gold Cold’s existing clientele.

It has seen a faster-than-anticipated rise in demand from customers of its newly acquired cold chain business, says Freddie.

Tasco Yusen Gold Cold Sdn Bhd managing director Andy Lee says the group’s strategy is to expand its business by providing more services that its existing customers would need.

Tasco Yusen Gold Cold handles the group’s cold chain business.

“We do not want to just expand the width of the business, as in the number of customers in the cold chain business. We want to go deeper by providing solutions that Tasco has to our existing customers,” says Andy.

The type of retailers in this segment that require logistics solutions include food chain retailers, convenience stores, retailers at petrol stations and pharmacists. Again, this complements its venture with Yee Lee.

Andy points out that Tasco is providing three type of services, namely dry, chill and frozen.

“For example, Häagen-Dazs would need logistics services for its dry products, such as its chocolate and cups. Convenience stores, which have products like ice cream (frozen), also have offerings such as fresh salad (chill) and drinks (dry). So, instead of having three logistics companies delivering the products, we are able to do it all,” says Andy.

With its full range of services, Tasco has started receiving queries from clients for regional coverage.

Tan says Tasco expects to see earnings growth only in the financial year ending March 31, 2019 (FY2019). “Earnings are expected to be flat in FY2018.”

For the nine months ended Dec 31, 2017, Tasco reported a net profit of RM24.35 million, marginally higher than the RM23.14 million it saw the year before. Revenue grew almost 24% to RM540.7 million from RM437 million. Its cold chain business generated revenue of RM39.5 million and profit before tax of RM4 million during the period.

As at Dec 31 last year, the group’s borrowings jumped by almost seven times to RM272.2 million from RM38.9 million the year before. Its gearing ratio shot up to 0.75 times from 0.15 times in March last year.

“The higher finance cost led to lower margin in the latest results. The sales mix was part of the reason for the decline in margin. Another reason was the amount of investment that we are doing to grow the business,” says Tan.

However, the management is optimistic about its long-term prospects, with the cold chain segment expected to see better results.

“We need some fresh funds to come in, not so much because we’re over-geared but because we need a war chest to [allow us to take advantage of] any opportunities that we see … we’re looking at various ways to do it,” says Freddie.

He hints that one aspect being considered is for strategic partners to invest in YLTC, especially investors who would benefit from the services provided by the JV.

Tasco’s share price has been on a decline since last July. It has fallen 13% year to date, closing at RM1.79 last Thursday. The sharp drop was partly due to its ventures not starting as early as expected.

Analysts remain optimistic about its potential, with a 12-month target price of RM2.44, indicating a potential return of 36%.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.