By OSK Investment Research
Fair Value: RM2.48
TASCO'S first quarter (ended March 31) revenue, earnings and core earnings came in at RM117.9mil, RM6.8mil and RM6.5mil respectively, with core earnings representing 18% of our financial year 2012 (FY12) forecast.
Though revenue was flat year-on-year, earnings increased 5% year-on-year owing to improving economies-of-scale and healthy margins recorded by its air freight business.
Thanks to the surge in demand during the Chinese New Year (CNY) festive season, Tasco's shipments of electrical and electronic (E&E) and fast moving consumer goods (FMCG) products to Japan, China and other countries in the regions picked up strongly, with the profit margin of its air and sea freight divisions expanding 11.6 percentage points and 1.7 percentage points respectively.
Contract logistics and trucking business continued to grow healthily with revenue increasing by 16% and 3% respectively.
Note that Tasco's contract logistics business registered a record 44% year-on-year growth in its first quarter of 2011, thanks to some new contracts secured from new clients.
On a quarter-on-quarter basis, the group's earnings were down 10% as the first quarter was typically the weakest quarter for the group owing to the CNY holidays.
While the group disposed of some of its old vehicles worth RM270,000 over the quarter due to re-allocation of resources and route optimisation, we remain positive on the group's expansion for its trucking and contract logistics businesses moving forward.
Besides, Tasco also registered healthy earnings before interest, tax, depreciation and amortisation and pre-tax profit margins expansion of 120 basis points and 40 basis points year-on-year respectively, thanks to the high margins earned from air freight shipments.
While the group's existing two million sq ft warehouse space is 98% utilised, it has decided to expand its warehousing division by adding a total of 770,000 sq ft of warehouse space in few strategic locations such as Shah Alam, East Malaysia and Port Tanjung Pelepas.
Tasco needs to expand its capacity to meet additional requests from its existing contract logistics clients (mainly FMCG and E&E companies) which are expanding their production aggressively and hence, their increasing demand for total logistics services.
We continue to like Tasco, which remains as our top pick within our logistic sector coverage.
We are bullish on its contract logistics business which is stable and risk-free, as it largely involves long-term contract logistics signed with multi-national companies for the provision of comprehensive logistics solutions.
We also expect the upcoming Olympics and Euro 2012 sports events to boost the shipments of plasma TVs and LCD in the second half. Thus, we foresee the group's upcoming second quarter and third quarter results registering healthy mid-teens growth on a year-on-year basis.
With earnings coming in line, we are maintaining our forecasts at this juncture. Hence, we maintain our buy rating on Tasco with its fair value unchanged at RM2.48, based on seven times financial year 2012 price-to-earnings ratio.
KUALA LUMPUR KEPONG (KLK) recorded 1.6 million tonnes of fresh fruit bunch (FFB) production for the first half of its financial year (FY) 2012 (+5.2% year-on-year). This is in line with our expected 10% to 12% year-on-year FFB production growth.
We expect KLK's FFB production to pick up in the second half as it will ride on the seasonally high crop season.
KLK is in the progress of building three refineries in Indonesia with a total capacity of 1.05 million tonnes per year.
This will increase its total refining capacity from the current 700,000 tonnes to 1.75 million tonnes per year.
The refinery in Indonesia is merely to cater to KLK's own crude palm oil production and to maximise its earnings from having a fully-integrated chain of operations in Indonesia.
The refineries are expected to be in commission by the second half of its financial year ending Sept 30, 2013 (FY2013) and this might allow KLK to capture the fat refining margin in Indonesia before the additional refining capacity comes on stream by end-2013.
Despite Europe's worsening economy, which is one of the key markets for KLK's downstream operations, management is expecting a better second quarter as it will better position raw materials to focus on oleochemical products with better margins.
We believe this would shield KLK from the deteriorating outlook in Europe and China. Order visibility is still short at only one to three months. Downstream operations contributed about 11% of KLK's FY2011 pre-tax profit.
Management indicated that it has received good response to its recently-launched Bandar Sri Coalfields township development with about 80% to 100% take-up rate.
To ride the momentum wave, KLK expects to launch two to three more projects in the second half of FY2012.
Nevertheless, the pre-tax profit contribution from the property division is relatively small (less than 1% in FY11).
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