Target Price: MYR2.30
Gradually On The Mend
Tasco’s earnings, which had been pressured by declining exports, have recovered somewhat of late. Thus, we expect its outlook to improve in the near- to mid-term, although we are lowering our FY13F-14F earnings forecasts due to higher fuel costs. Notwithstanding the lower net profits, we lift our call to BUY (from Neutral) with our FV revised to MYR2.30 (from MYR2.10).
• Earnings pressured. Tasco’s 2Q13 core earnings came in lower at MYR5.4m (+26.6% q-o-q; -23.3% y-o-y), which was below our expectations. This was due to its international business division’s weaker performance on lower export volumes. Its domestic business division also faced challenges during this period, as business volumes declined on lower demand and intense competition.
• Export data on the mend. Tasco has been vulnerable to the sluggish export levels, notably from its major Japanese clients. However, the latest export data from the major trading nations have shown encouraging improvement and Japan alone saw exports climbing 14.7% in August (July: +12.2%) – the country’s strongest pace since 2010. With this in mind, we expect Tasco’s operations to begin recovery by year-end.
• Revising earnings to factor in rising fuel cost. Although Tasco will be able to pass-through its higher fuel costs to most of its customers, there will be implementation delays. Thus, we conservatively revise downwards our FY13/FY14 earnings forecasts slightly by 4.4%/2.7%.
• Risks. Prolonged sluggishness in the economy and weak exports could further dampen Tasco’s performance.
• Upgrade to BUY, lifting FV. As the macroeconomic outlook may brighten by year-end, we upgrade Tasco’s FY14F P/E to 8.0x (from 7.0x), which is its historical P/E. This, however, remains below the 10.1x FY14F P/E of its peers. Note, though, that Tasco has greater exposure to the export market, where a sustainable recovery has yet to be seen. Hence, we revise upwards its FV to MYR2.30 (from MYR2.10) and upgrade our call to BUY (from Neutral).
Publish date: 25/09/13