This article first appeared in The Edge Malaysia Weekly, on December 7 - 13, 2015.

AROUND this time a year ago, Tasco Bhd was close to completing a successful financial year.

Number crunchers tracking the company’s revenue and profit figures saw its results at every quarter surpassing the achievements of the year before. By the end of its financial year ended March 31, 2015 (FY2015), the integrated logistics firm predictably reported a record-breaking year in earnings. Only FY2011 recorded a higher profit of RM34.6 million. This was due to a one-off saving of RM9.8 million in corporate tax.

For FY2016 to better FY2015 — which Tasco managing director Freddie Lim Jew Kiat calls a “tremendously good” year — is “a tall order”.

One obvious hurdle is the weaker domestic economy in Malaysia. But that is not to say that Tasco (fundamental: 1.80; valuation: 1.40) will fizzle out and give investors a disappointing year.

The recent weakness in its share price, which slid from RM2.04 in early October to a low of RM1.55 on Nov 30, reflects the concerns over its earnings contraction in the first six months ended Sept 30. The stock regained some lost ground to close at RM1.78 last Thursday.

“Last year was our highest in terms of revenue and profit. To perform better than that, we have to make new history. But you have to catch your breath before aiming for the next higher achievement,” Lim tells The Edge.

In the first half (1H) of FY2016, Tasco’s profit stood at RM13.2 million, nearly 27% lower than the RM18.05 million it achieved in the previous corresponding period. The decline in revenue was not as large but at RM246.7 million, it was still 4.2% lower year on year.

The company’s usually robust contract logistics (CL) division, which offers services such as customs clearance, haulage and warehousing, saw a 17% drop in profit in 1HFY2016.

Lim explains, “Our business is affected by the economic situation because we are dealing directly with trade, exports and imports. If our customers are affected, we are affected … CL is our biggest division, accounting for over 40% of our revenue and over 80% of our profit. It is the driver of our business and if that is hit, the impact can be seen.

“It is also because of the current market condition — our competitors have started to reduce their prices and give discounts on their properties.”

However, thanks to Tasco’s diversification, the effect of the domestic decline has been partly cushioned by its international business solutions segment, which saw an improvement due to newly secured clients and an increase in customer shipments.

In fact, Lim says the company is striving to narrow the earnings gap between FY2015 and FY2016. “It is going to be a tougher year ahead … but there is much out there we can do.”

One of its strategy is to provide seamless CL services on a regional scale through closer collaborations with partners within the Yusen Logistics network — the latter is its Japanese parent. More importantly, Tasco is stepping up efforts to expand its client base, to sectors that it does not serve widely yet. One of its main targets is the fast-moving consumer goods (FMCG) sector.

“In the last three to four years, every country in the region [within the Yusen Logistics network] has been going for domestic expansion, developing their own internal businesses. Now, we are exchanging more information and leads on customers, and trying to get more business for each other,” says Lim.

“For example, if a customer in Malaysia is importing goods from Vietnam, we can bring the shipment into Malaysia and provide logistics from the beginning to the end, including storage and distribution in the domestic market and other countries. We have partners and systems in other countries that can receive shipments from Malaysia.

“Or, if there are customers that do not need warehousing space and only need to move goods from one country to another but whose procurement teams are based in Malaysia, we can arrange for that too,” he continues.

“Whenever a customer is required to move something anywhere, from any point at any time, we are able to provide them with the service. This is what we call a regional or global business and we want to do more of it.”

For companies that require only warehousing services, Tasco provides value-added services such as labelling, packing and repacking, ensuring that its warehouses play a crucial role in the storage and distribution of its customers’ products.

According to Lim, Tasco is currently serving one or two customers from the FMCG sector. Despite the slimmer profit margin it can command from the sector, the high volume, high turnover nature of the industry makes a compelling case for Tasco’s deeper involvement.

“It (FMCG) is where the staple business is. We no longer produce for ourselves … we produce for the world,” he says.

More importantly, the FMCG sector presents a big opportunity for Tasco to leverage the Yusen Logistics global network, an advantage it has over many of the logistics players that are only able to serve the local market.

“When we ventured into the FMCG sector, we found that a lot of them did not have integrated communication within the region and were very local-centric. We found that there were a lot of opportunities for us to provide a regional effect — to provide a cost-effective solution to move goods from country to country. It is what the customers need,” says Lim.

Tasco is not just looking to capture business volume, it is also seeking new markets to further diversify its client base. It plans to expand its presence in the niche but growing aerospace industry.

“We are targeting companies that produce aerospace parts. The demand from the industry is very stable. These companies have forward orders of 20 years. There are those in Malaysia that produce aerospace parts that need special care and special treatment in transporting them. They don’t mind giving you special payments to do that,” says Lim.

There is no denying that the weaker economic environment has thrown Tasco a curveball. Yet, judging from the logistics firm’s resilient track record — it had managed to stay profitable during two financial crises, in 1997/98 and 2008 — and its constant search for new growth areas, it is not a hurdle that it cannot cross.

Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Go to www.theedgemarkets.com for more details on a company’s financial dashboard.

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