(March 25, 72 sen)
Maintain neutral with a lower target price of 73 sen: Tasco Bhd’s international business segment makes up about 30% of its total revenue. About 65% of its international business segment revenue, is in turn contributed by the air freight forwarding segment. Recall that for the nine months of financial year 2020, the air freight forwarding segment saw its revenue and pre-tax profit decline by 15% year-on-year (y-o-y) and 40% y-o-y, respectively, due to the drop in export shipments of capacitors and chemical customers.
According to Bloomberg, key suppliers for Apple’s smartphone components in Malaysia such as Murata Manufacturing Co Ltd, Renesas Electronics Corp and Ibiden Co Ltd have halted production as a result of the government’s movement control order (MCO). We understand that Renesas is Tasco’s client.
Therefore, this will not only impact the air freight forwarding business in the short term as these companies’ products are usually transported via air rather than sea, but also the warehousing business as fewer goods will need to be stored before shipment overseas. China’s official manufacturing purchasing managers’ index also dropped to an all-time low of 35.7 points in February 2020. In addition, Tasco’s strategic partnership with AirAsia Group Bhd will also be affected as the airline saw a 2.3% y-o-y drop in its number of flights in February 2020 amidst capacity cuts especially to North Asia.
We expect revenue for the joint venture between Yee Lee Corp Bhd and Tasco to be affected by the MCO via the contract with Shell Malaysia Trading Sdn Bhd to provide supply chain services for Shell convenience retail outlets in Peninsula Malaysia. This is because the MCO will translate into lower fuel consumption among consumers, indirectly impacting the footfall at petrol kiosks. — MIDF Research, March 25