Tasco’s air freight forwarding and warehousing business is set to face further headwinds as some key suppliers for Apple in Malaysia have halted production due to the MCO.
KUCHING: Tasco Bhd’s (Tasco) air freight forwarding and warehousing business is set to face further headwinds as some key suppliers for Apple in Malaysia have halted production due to the movement control order (MCO).
The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) recapped that Tasco’s international business segment makes up approximately 30 per cent of the company’s total revenue.
It further recapped that under Tasco’s international business segment, around 65 per cent of revenue is contributed by the air freight forwarding segment.
“According to Bloomberg, key suppliers for Apple’s smartphone components in the country such as Murata Manufacturing Co, Renesas Electronics Corp and Ibiden Co have halted production as a result of the MCO.
“So far, we understand that Renesas Electronics Corp is a client of Tasco,” MIDF Research said.
“Therefore, this will not only impact the air freight forwarding business in the short term as products of these companies are usually transported via air rather than sea but also warehousing business as less goods will need to be stored before shipment overseas.
“China’s official manufacturing Purchasing Managers’ Index (PMI) also dropped to an all-time low of 35.7 points in February 2020.”
Looking ahead, the research arm expected manufacturing and production activity in China to gradually recover in the second half of current year 2020 (2HCY20) provided that the fears of Covid-19 have subsided.
“However, the ‘pent-up’ demand in and outside China once factories resume running at full tilt will lead to a crowded market whereby local companies such as Tasco will have to compete with bigger established companies in offering attractive services.”
Meanwhile, the research arm noted that Tasco’s strategic partnership with AirAsia Group Bhd will also be affected as the airline saw a 2.3 per cent year on year (y-o-y) drop in the number of flights for February 2020 amidst capacity cuts especially to North Asia.
On Tasco’s retail convenience logistics, MIDF Research projected this segment to also be impacted by the weak retail sector.
“We expect revenue for the joint venture (JV) between Yee Lee Corp Bhd and Tasco to be affected from the MCO via the contract with Shell Malaysia Trading Sdn Bhd to provide supply chain services for Shell convenience retail outlets in Peninsula Malaysia.
“The reason being is that the MCO will translate into lower fuel consumption amongst consumers, indirectly impacting the footfall at petrol kiosks.”
That said, the research arm opined that the lower diesel pump prices could help Tasco in managing its fuel cost structure which makes up three to four per cent of the group’s operating expense.