This article first appeared in The Edge Financial Daily on January 17, 2018

Tasco Bhd
(Jan 16, RM2.08)
Maintain buy call with an unchanged target price (TP) of RM2.69: Tasco Bhd announced that its wholly-owned subsidiary Titian Pelangi Sdn Bhd on Jan 12, 2018 entered into a sale and purchase agreement with Onostatic Sdn Bhd for the disposal of a warehouse and office building in Port Klang for RM17.5 million.

The said property consists of a land area approximately 339,676 sq ft and a net floor area of 144,648 sq ft. It has a 99-year leasehold tenure expiring on Jun 9, 2086.

We understand that the land is valued by ITAC International (Kajang) Sdn Bhd using the comparison method approach with an indicative valuation of RM18.5 million. Meanwhile, based on our simple discounted cash flow calculation, we have gathered a value of RM16.5 million by assuming rental of RM3 per sq ft per month and a discount rate of 6.5%.

Proceeds will be utilised as working capital. We learnt that RM16.8 million out of the disposal price of RM17.5 million will be utilised as working capital after paying the expenses on disposal (RM650,000).

An estimated one-off gain of RM5.48 million will be recorded from the exercise. The one-off disposal gain of RM5.48 million, which is equivalent to 2.7 sen based on the current share base will be recorded after completing the exercise.

Overall, we are positive with the disposal of the warehouse as it unlocks and realises capital appreciation of the property without having disruption towards its business (Tasco plans to shift its current warehouse facility to elsewhere).

There’s no change to our core earnings forecasts for financial year 2018 (FY18) and FY19 as it is a one-off exceptional item.

Major risks include: i) a higher fuel price, ii) change in government policy, iii) hiccups in performance due to a loss of major customers, and iv) slowdown in the domestic and overseas economies.

We maintain our “buy” call on Tasco with an unchanged TP of RM2.69. Our valuation is pegged at 13 times FY19 forecast price-earnings ratio (PER). Our target PER valuation is slightly higher than the average forward PER of its peers of 12.8 times in view of its commanding position in the sector and at the range of an upcycle forward PER.

Overall, we are sanguine about its future growth following its venture into the cold chain market. With this, Tasco is able to generate synergies across all of its divisions and provide integrated logistics services for its clients. — JF Apex Securities, Jan 16