Inter-Pacific ‘Neutral’ on Tasco’s potential vaccine contract

by SHAHEERA AZNAM SHAH / pic by BLOOMBERG

INTER-PACIFIC Research Sdn Bhd is staying ‘Neutral’ on Tasco Bhd over the group’s possible involvement in Malaysia’s Covid-19 vaccine storage and distribution plans through its cold supply chain (CSC) segment.

The research house said the logistics solutions provider’s share price has rallied over Inter-Pacific’s fair value.

“We lift our target price to RM1.17 from the previous 95 sen as we tweak our earnings to include the benefits of the tax incentive to its bottom line,” it said in a recent report.

During a meeting with the research house, Tasco revealed that the Health Ministry (MoH) has engaged them for potential services in providing logistical support in distributing the Covid-19 vaccine.

Vaccine distribution is expected to commence by the end of the year, Tasco said, adding that pricing agreements and other details remain scarce, as vaccine developments are still underway.

However, uncertainty remains on the limitations of the current CSC facilities in Malaysia to meet the requirements for proper vaccine storage.

“There is little doubt that Tasco will be involved in the process, but the exercise may not be as highly earnings accretive, in our view.

“The unprecedented scale of vaccine distribution with a complex challenge in its logistics, coupled with achieving maximum outreach to obtain herd immunity against a dire economic backdrop and national interest may provide little room for profit-making,” Inter-Pacific said.

Tasco’s CSC segment is currently operating at 85% to 90% capacity with the excess left for managing storage space.

Last week, the group received approval from the Malaysian Investment Development Authority for a second round of tax incentive to conduct integrated logistics services (ILS) activities as its expansion project.

The logistics provider said the tax incentive would allow for income tax exemption through investment tax allowance (ITA) of 60% of its qualifying capital expenditure incurred within five years.

The ITA can offset against 70% of statutory income for each year of assessment.

“Among the terms and conditions stipulated in the approval letter, the company shall make additional investments in capital expenditure (capex) related to logistics of at least RM240 million for five years.

“At this juncture, the board has yet to quantify the amount of tax savings from the ILS incentive as the total investment cost has yet to be finalised,” Tasco said in a statement.

The ITA is expected to provide some RM70 million to RM80 million in earning benefits over the next seven to 10 years.

Capitalising on the tax incentive, the group plans to build a new warehouse in Shah Alam, Selangor, that will take approximately three years to complete.

“We previously noted the estimated capex for this to be between RM150 million and RM200 million,” Inter-Pacific said.

The research house raised its earnings expectations for Tasco by 16% and 20% for the financial years ending March 31, 2021 (FY21), and FY22.

Shares of Tasco closed 4.8% or seven sen higher at RM1.52 last Friday, giving the firm a market capitalisation of RM304 million.