PETALING JAYA: Tasco Bhd
’s earnings are expected to remain resilient despite the normalising of market freight rates.
The logistics solutions provider has exposure to a diversified segment, and this will shelter it from the freight business’ unfavourable environment, say analysts.
In the third quarter ended Dec 31, 2022 Tasco reported a net profit of RM20.4mil, bringing its nine-month (9M23) profitability to RM69mil. The results came above analysts’ expectations on the back of a stronger than expected growth in its domestic business segment.RHB Research said while the unfavourable freight rates are a major concern, they have stabilised, and the pick-up in trade should lead to positive throughput volume growth in the near term.
“Despite the normalisation of freight rates as expected, 9M23 profit before tax for both the international and domestic business segments continued to be lifted by 31.1% and 8.7% year-on-year (y-o-y), underpinned by strong shipment volumes,” it said in a report.
Within the contract logistics division, it noted that the haulage business still lagged due to delivery order reductions by major electrical and electronics customers and fleet operating costs.
Nevertheless, it said the haulage and customs clearance businesses’ profit before tax drop was well cushioned by the warehouse wing within the same division.
RHB said it continued to look forward to major business awards this year and the 620,000 sq ft Shah Alam Logistics Centre’s expansion, which will allow Tasco to capture the warehouse shortage opportunity at superior yields (given the low land cost) in the first half of calendar year 2024.
RHB “likes Tasco’s operational excellence and management’s strategies in continuing to deliver commendable sustainable performances – defying investor expectations of an earnings contraction amid down-trending freight rates and uncertainties within the global economy”.
Meanwhile Apex Securities Research said international freight rates were trending downward at a slower pace than expected.
“Despite the freight rate falling back marginally from its peak, the extent is weaker than expected as the prolonged supply chain caused by the Europe-Russian conflict.
“We expect the rates will be further trending down in the coming period, underpinned by the backdrop of inflationary pressure and an interest rate upcycle that are likely to weigh on consumer demand and depress the freight rates further,” it added.
It said freight rates would be higher than pre-pandemic levels due to the elevated fuel and labour costs. It also expects margin to be impacted by the weakening of the US dollar as Tasco bills their freight customers in that currency. “Hence, we expect revenue and profit margins to be negatively affected by the weakening of the US dollar in the next quarter,” it added.
On Tasco’s warehouse expansion, Apex said it was on track.
Phase one is expected to be completed by January 2024, while Tasco plans to to build another 500,000 sq ft of warehouse space under phase two in the next financial year.
