Tasco’s share price surges 28.3% within four months

by **Cals** Thu 25 Sep 2014, 01:20

Business & Markets 2014

Written by Kenanga Research

Wednesday, 24 September 2014 11:46

Tasco Bhd
(Sept 23, RM3.40)
Take profit with fair value of RM3.23: Since our last “On Our Radar” report on Tasco in May this year with a trading “buy” call, its share price has surged 28.3% in the space of four months and surpassed our target price significantly possibly due to: (i) its robust second quarter calendar year 2014 (2QCY14) financial results driven by stronger air freight division; and (ii) increased awareness of the value in the logistics service provider with undemanding valuation of 9.1 times financial year 2015 (FY15E) price-to-earnings (PER) back then and stronger outlook on the local logistics industry underpinned by higher digitalisation thus leading to higher usage of logistics service for online shopping.

In 2QCY14, Tasco had announced a change in their financial year ending from December to March. Therefore, FY13 will consist of five quarters. On the other hand, we have projected FY15E and FY16E earnings based on the new financial year-end, which amounts to RM28.5 million and RM29.6 million respectively.

We believe the earnings projections are conservative given that in first quarter of 2015 (1Q15) the group has already achieved RM10 million in net profit, which accounts for 35.1% of our full-year FY15 projection. The main reason behind our conservatism is that the management expects earnings to be slightly weaker in the coming quarters compared to 1Q15.

We believe that there is a secular trend in the logistics industry in the long run whereby online retailing will soon dominate the traditional brick-and-mortar retailing business model. This, in our opinion, will give a shot-in-the-arm for the local logistics industry as more sophisticated distribution and warehousing system is needed by retailing companies. This will in turn give rise to higher importance of logistics services providers in the business value chain.

Although we believe Tasco’s fundamentals remain robust, we believe that its valuation is not compelling with CY15 PER at 11.6. After rolling forward our valuation from CY14 to CY15 and rerating its multiple to 11 times, our fair value is revised upward to RM3.23 from RM2.79 previously. — Kenanga Research, Sept 23

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This article first appeared in The Edge Financial Daily, on September 24, 2014.[/size]