Tasco Bhd
(May 15, RM1.36)
Upgrade to buy with an unchanged target price (TP) of RM1.71. We upgrade our call for Tasco Bhd to a “buy” due to its recently depressed share price, while maintaining our previous TP of RM1.71 derived from its two-year average price-earnings ratio band of 13 times to a forecast financial year 2020 earnings per share of 13 sen.

Acquiring additional controlled temperature warehouse space will allow Tasco to continue to capture more of the cold chain market to drive growth, and move away from its traditional last mile delivery service.

Tasco has announced a proposed acquisition, by its cold chain unit, Gold Cold Solutions Sdn Bhd, of seven parcels of leasehold industrial land with a size of 16.3 acres (6.59ha) in Port Klang, Selangor for RM25.83 million from Hai San Holdings Sdn Bhd and Hai San & Sons Sdn Bhd (subsidiaries of Haisan Resources Bhd).

This includes a controlled temperature warehouse facility with a capacity of around 15,000 pallets to add to Tasco’s capacity. The acquisition is to be funded by a combination of borrowings and internally generated funds. The acquisition is expected to be completed in the second half of 2019.

Tasco’s current cold chain warehousing operation has been operating at full capacity. The proximity of the assets to Port Klang, expressways, and Tasco’s Port Klang Logistics Centre offers it convenience in managing the new space.

With the recent investment by a Japanese government fund giving a vote of confidence, and the continued expansion as part of its growth strategy, the outlook for Tasco remains bright.

Re-escalating trade war tension will most likely see more movement of Chinese and Japanese goods within the region. The management notes that the acquisition is not expected to have any material impact on earnings and gearing for FY20. — Inter-Pacific Research, May 15