TASCO Berhad

by mabs Fri 20 Apr 2012, 12:00

TASCO Berhad-Investment Highlights

Strong 3 years mid-term plan. The Group expects an increase of 25% in total revenue and PBT from 2011 to 2014 via its four strategies which are: a) expansion of existing customer base by offerring auxiliary services such as customs clearance, warehouse, haulage, trucking, auto CBU logistics and others; b) expansion of Light Asset Based Business by increasing its sea freight, air freight and truck consol segments; c) expansion of Asset Based Business through RM83m worth of warehouse investments in Shah Alam, Tanjung Pelepas, Kuching and Kota Kinabalu as well as an additional RM10m expansion for its haulage and trucking; and d) expansion of non- Japanese Customers to 50% of topline contribution in 2014 from current level of 36%. We believe the Group’s planned strategy will further boost its revenue and henceforth attract the investors’ attention.

Healthy earnings growth for the past 4 years. The Group has successfully achieved revenue and net profit CAGR of 9.19% and 27.61% respectively for the period of 2007 to 2011. Moving forward, we believe the Group is able to meet market expectation of RM35.8m and RM37.6m in net income for 2012 and 2013 and further achieve its target of RM600m revenue and RM48m profit before tax in 2014.

Rising profit margin. The Group managed to increase its net profit margin from 4.0% in 2007 to 7.5% in 2011 thanks to its operational efficiency in providing integrated logistics solutions via its extensive domestic and international networks. We expect the Group is able to sustain profit margin at around 6.7- 7.0% in 2012-13.

Cost efficient by utilising sub-contractors. The Group hires sub-contractor to have more flexibility in allocating resources to meet the growing business volume. The utilization of sub-contractor has enabled the Group to sustain its margin by avoiding unnecessary in-house operational resources during business down cycle. We believe the utilization of subcontractor would continue to render promising margin for the Group and avoid any losses. In addition, the model may save any cost of hiring permanent staff to handle the logistic task.

Strengthening its position in Contract Logistic Division as this segment provides the largest earnings contribution to the Group. Contract logistic division in the likes of warehouse, in-plant, haulage, customs clearance and auto CBU divisions show the highest profit among the other divisions (such as sea freight, air freight and trucking) by contributing 78% profit to the Group.

Expanding warehouse size. The Group has earmarked RM93mil capital expenditure in 2012 mainly for the expansion of asset based business as compared to RM49mil in 2011. The capex will see warehouse size to increase by 77,000m2, haulage units to increase by additional 20 units and trucking units by additional 30 units. The high capital expenditure indicates the management’s confidence in the asset based business and it bodes well for the long term prospect of the Group.

Attractive dividend. With the rising capital expenditure in 2012, we believe the Group remains committed to its considerable dividend payout (historical dividend payout of 32-42% for 2009-11) for coming 1-2 years in tandem with the rising bottom lines. Assuming the Group expects 35% payout for 2012-13, translating into 12.53 sen/share in 2012 and 13.16 sen/share in 2013, or equivalent to dividend yield of 5.9% and 6.2% respectively.

Recommendation

Still some upside potential despite share price increasing 30.25% YTD. The Group’s share price is currently trading at 5.6x consensus FY2013 EPS, which is at its mean. Our fair value of RM2.47 for Tasco (non-rated) is pegged at 6.5x consensus FY2013 EPS (mid to up cycle valuation) of 38 sen mainly due to its promising outlook. Our target price translates into potential upside of 16.5%.

by **Cals** Fri 20 Apr 2012, 13:03

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by **hlk** Fri 20 Apr 2012, 13:13

+1 rep = 213

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