Tasco’s FY21 earnings expected to decline on MCO impact


TASCO Bhd’s earnings for the financial year ending March 31, 2021 (FY21) are expected to decline from the impact of the Movement Control Order (MCO) as the ongoing Covid-19 pandemic continues to disrupt the logistics sector’s operating ecosystem.

The company’s management said its current financial year (FY20) will not be badly hit by the MCO as Japanese customers pushed volumes as they went into their financial year ended in March, which will offset some of the shortfalls, Inter-Pacific Research Sdn Bhd wrote in a recent note.

“However, we can expect to see a dip in sales going into FY21. This will come largely from its freight forwarding business, but the contract logistics and cold chain business segments continue to operate,” it said.

Electrical and electronics customers, a large contributor to revenue, experienced operation disruptions due to confusion over whether they were classified as essential services.

“Some manufacturers are slowly resuming operations after further clarifications on the matter by government ministries and obtaining approval to operate from the Ministry of International Trade and Industry,” the research firm said.

Despite the MCO extension from end-March to April 14, Tasco’s performance should improve compared to the initial MCO period as more clients are able to resume operations.

“Retail logistics operations saw a pick-up in volume which we assume was a result of panic-buying behaviour but reduced operating hours of convenience stores due to the MCO look to reduce overall footfall and possibly stock replenishment activities,” Inter-Pacific said.

The MCO, which began around mid-March and was set to end on March 31, was later extended to mid-April for a total of 28 days, to curb the rapid increase in Covid-19 cases.

The order has disrupted and ceased operations of most local manufacturers, negatively impacting the logistics sector with lower cargo volumes and shipments.

Operations deemed to be essential services could continue operating, which include logistics.

Inter-Pacific has tweaked its earnings expectations of Tasco lower by 3.6% and 3.7% for FY20 and FY21 respectively after imputing the effects of the pandemic.

Going forward, the virus outbreak continues to affect manufacturers globally and likewise the logistics sector.

“The number of cases in Malaysia continues to rise and the possibility of a further extension to the MCO lingers, which could further drag down earnings.

“As of end-January, Tasco’s management shared they had a cash balance of RM200 million which they believed to be enough to buffer against any hiccups they may encounter,” the research firm said.

Airfreight rates have recently soared as a result of capacity constraints, it added.

Travel bans have sharply reduced the available belly capacity of air carriers. Moreover, a lack of shipments of raw materials into Malaysia has reduced output of finished products to be shipped out, resulting in cancellations of outbound freighters and reduced shipment volumes.

“Similarly, ocean freight has seen increases in rates, and this may potentially narrow margins ahead,” the research house said.

However, China has been at the forefront of a recovery from the outbreak, drawing closer expectations for a resumption in normal operations.

As trade flows slowly resume, this looks to provide some buffer against a worsening backdrop in other geographic regions.

“We maintain our ‘Neutral’ call with a lower target price of 78 sen (previously RM1.14) derived from a price-earnings ratio of 10 times (from 14 times), a slight discount to the industry peer average of 10.8 times, pegged to our FY21 earnings per share forecast of 7.8 sen (from 8.1 sen),” it said.