Warehousing to be Tasco’s key top-line driver

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Tasco Bhd
(April 14, RM3.90)
Maintain buy, with a revised target price (TP) of RM4.76, from RM3.43 previously
. Tasco is likely to participate in more regional logistics contracts, which should propel its earnings growth further to an estimated three-year CAGR (compound annual growth rate) of 17.4%. Maintain buy with a higher TP of RM4.76 (26% upside, 13 times financial year 2016 forecast (FY16F) earnings per share (EPS), after raising FY15-FY17 earnings forecasts by 7% to 12%. We like Tasco for its improving returns on equity (ROE) of 11% to 13%, solid net cash position and strong earnings CAGR.

Tasco’s new two-storey warehouse at Port of Tanjung Pelepas (PTP) started operations in late January, with its utilisation space currently full. We gather that demand at PTP is overwhelming, putting pressure on Tasco to seek more warehouse space by leasing from third parties in the interim.

Tasco has a client base of 80 companies which use its warehouses throughout Malaysia. Its managing director, Freddie Lim, was quoted in The Edge weekly that it is actively bidding for new jobs — receiving as many as 100 invitations for regional logistics contracts. The recent appointment of Tasco chairman and founder, Lee Check Poh as Yusen Logistics regional executive officer for South Asia and Oceania effective April 1, should propel Tasco to grow its customer base further.  

We expect Tasco’s warehousing business to be the key top-line driver, which should spur revenue contribution from its trucking division and contract logistics division.

We expect these two divisions to grow 12% to 20% in FY16 to FY17, but we conservatively expect the air freight and sea freight divisions to grow 2% to 3% over the next two years.

In view of the favourable outlook for Tasco’s expansion plans, we raise our earnings projections for FY15, FY16 and FY17 by 7%, 12% and 11%, respectively.

We maintain our “buy” call with our TP raised to RM4.76 premised on 13 times price-earnings ratio (PER) on FY16 EPS. Coupled with its decent improving ROE of 11% to 13%, solid net cash position and three-year projected earnings CAGR of 17.4%, we think this growing logistics company deserves a PER multiple of 13 times, as interest from institutional investors has picked up. — RHB Research, April 14

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This article first appeared in The Edge Financial Daily, on April 15, 2015.