This article first appeared in The Edge Financial Daily on November 19, 2018

Tasco Bhd
(Nov 16, RM1.23)
Maintain neutral with a lower target price (TP) of RM1.28: We have maintained “neutral” on Tasco Bhd with a lower TP of RM1.28 derived from a lower 11 times price-earnings ratio pegged at financial year 2019 (FY19) earnings per share forecast of 11.63 sen.

Trade tensions, coupled with a global economic growth slowdown, should see the performance of the logistics sector flatten out. Diversification away from its traditional space, a wise move, should pay off only later.

For the quarter under review, Tasco recorded revenue of RM191.1 million, growing by 5.2% compared with the preceding quarter’s RM181.6 million. The international business solution segment saw a decrease in export shipments to the UK and Spain, electronic parts and aerospace customers. On top of thinner margins, this resulted in lower earnings for its airfreight forwarding segment for the second quarter of FY19 (2QFY19) ended Sept 30, 2018.

The domestic business solution (DBS) segment reported an 8.2% growth quarter-on-quarter, mainly attributed to further growth of the cold supply chain (CSC) segment. Other divisions within the DBS segment saw increased activity which boosted revenue. These included higher delivery volumes from electrical and electronics as well as musical instrument manufacturers, new retail customers and increased export shipments.

Overall, revenue slipped 0.5% from 2QFY18. Profit before tax across the group fell due to higher operating costs and increased finance costs of funding the newly acquired business under the CSC division. Tasco also secured a contract to provide supply chain services for Shell convenience retail outlets across Peninsular Malaysia, but we have yet to see this bear fruit. — Inter-Pacific Research, Nov 16