THIS year has largely been positive for logistics firm Tasco Bhd. The case has been generally similar for most of Malaysia’s logistics-related counters which have performed stronger, buttressed by the improved trade outlook for Malaysia and the accelerated growth of e-commerce.
According to analysts, the rosy trend is set to continue moving forward, with significant industry players such as Tasco expected to benefit from the sectoral uptrend.
Year-to-date, Tasco’s share price has rallied by about 66% to RM2.44, driven by the “Jack Ma effect” and the proposals related to the company’s maiden foray into the cold chain segment.
Note that earlier this year, Ma of the e-commerce firm Alibaba fame has launched Malaysia’s Digital Free Trade Zone, some four months after he met Prime Minister Datuk Seri Najib Tun Razak in Beijing. Ma has also been appointed as Malaysia’s digital economy adviser.
Tasco is set to penetrate into the cold chain business after both proposals of its EGM received near unanimous approvals from the shareholders.
The logistics player will be acquiring 100% of Gold Cold Transport Sdn Bhd’s (GCT) equity from Chang Kok Fai and Chan Sun Cheong for a total value of RM185.62mil. The other proposal was related to the acquisition of six parcels of leasehold land in Pulau Indah for RM113.83mil and the takeover of MILS Cold Chain Logistics for RM9.93mil from Swift Integrated Logistics Sdn Bhd.
The acquisition of GCT and MILS will put the company on the right track in becoming an end-to-end logistics solutions provider, covering both dry and chill logistics delivery. Tasco is expected to become one of Malaysia’s leading cold chain services providers in terms of cold storage capacity, second only to Tiong Nam Logistics Holdings Bhd.
Tasco executive chairman Lee Check Poh expects the firm to generate some RM110mil in revenue from its involvement in the cold chain segment in the current financial year.
“The expected RM110mil revenue represents about 15%-20% to our overall top line, based on our revenue last year. We consider this to be a conservative projection as we did not include the value that could be generated via the synergy created between the new cold chain segment and our other existing business segments.
“We believe that these acquisitions that have been approved by our shareholders, will put us as one of the best end-to-end logistics solutions provider,” he said, while adding that Tasco is constantly on the look-out for viable opportunities to further expand its operations. The acquisition of GCT is expected to be completed by middle of this month while the acquisitions from Swift Integrated Logistics are anticipated to be done by end-November 2017. Post-acquisition, Tasco, which has historically been a net cash company, will see its gearing ratio to rise to about 1.28 times.
The acquisitions will be made via internally-generated funds as well as bank borrowings.
GCT and MILS will stand as prized possessions of Tasco, as the company ventures into the cold chain logistics business.
The GCT Group which has an operational track record of more than 20 years, owns a sizeable fleet of 192 reefer trucks and operates cold room warehouses in Shah Alam with a storage capacity of 27,128 pallets. Its customers are mostly large multinational corporations in the food industry.
On the other hand, MILS owns three reefer containers and operates in a warehouse building. The acquisition of MILS will enable Tasco to have access to the former’s existing business operations and its cold room storage facility with a capacity of 10,643 pallet space in Westport, Port Klang.
Upon the acquisition of both GCT and MILS, Tasco would efficiently scale up its cold chain logistics capabilities, as it will collectively have a total cold room storage capacity of 37,771 pallet space.
Tasco deputy managing director Tan Kim Yong says that while the expected post-acquisition gearing ratio of 1.28 times is considered sustainable, the company is actively looking at different approaches to manage its gearing level.
“We see a gearing ratio of 1.28 times as still sustainable. However, we are also looking at different ways to manage our gearing ratio to allow us to undertake any further operational expansion and to invest more.
“On the long-term basis, we hope to pare down our gearing ratio and let it to settle below one times,” he says.
Analysts are generally optimistic vis-a-vis Tasco’s maiden foray into the cold chain business, as the new segment is anticipated to drive stronger earnings growth.
In a recent note, MIDF Research notes that the acquisitions which represent about 70% of Tasco’s current market capitalisation, reflects the company’s strong desire to grow.
“Tasco’s purchase of cold chain logistics assets provides an impetus in the financial year of 2018 (FY18), evolving from having nil cold chain assets to a market leader in the segment. We believe that the company’s return-on-equity will improve to 13.7% in FY18 with the acquisitions of Gold Cold and MILS, primarily from a higher equity multiplier and profit margin.
“We expect the acquisitions to be earnings accretive, despite the premium paid for full control of both Gold Cold and MILS. We also estimate incremental earnings per share as a result of the acquisitions as we view them as clear-cut extensions to Tasco’s core domestic logistics business with minimal product overlap or staff redundancy,” says MIDF Research, which issued a “buy” call on the counter.
Echoing a similar stance, RHB Research reiterated its “buy” recommendation on Tasco, underpinned by its earnings growth trajectory and margin expansion post-completion of its acquisition of cold chain and warehousing operations.
“We view Tasco’s strategy positively. The acquisitions would allow the company to differentiate itself from peers and operate in a niche market segment where barriers to entry, growth potential and profitability are higher given the more stringent and specific requirements of cold chain logistics.
“We forecast the company’s net gearing to increase to 73% in FY18 from net cash in FY17F, following the acquisitions. Despite the stretched balance sheet, we are of the view that the company should still be able to generate a stronger two-year net profit compound annual growth rate of 17% as it ramps up its cold chain operations,” says the research house.
Tasco is a small-mid cap counter, with a market capitalisation of RM484mil. Its current price-to-earnings ratio stands at 15.79 times. The Main Market-listed firm which was has more than 40 years of operational experience, is controlled by Japan-based Nippon Kabushiki Kaisha Group (NYK Group) which holds the majority stake of 65%. Lee holds 10% of Tasco’s equity.
Tasco recorded a marginally higher earnings in its financial year of 2017 ended March 31 as its net profit was up by 0.2% year-on-year (y-o-y) to RM30.67mil. However, its overall revenue showed a significant improvement as it increased by 13.3% y-o-y to RM584.4mil, primarily attributed to its international business solutions (IBS) segment which posted a significant increase in revenue.
Segmental wise, its domestic business solutions division which comprises contract logistics and the trucking divisions, contributes about 55.1% to Tasco’s top line. The IBS segment contributes the rest of the company’s revenue.
Moving forward, Tasco aims to become an end-to-end logistics solutions provider and to serve its clients based on their preferred customisation. “We are constantly looking for opportunities to expand our operations. We are also continuously increasing our customer base. Tasco is open to work with any strategic partner who can complement us both financially and operationally,” Lee says, adding that it is not in a hurry to find investors.