Stripping out i) loss of foreign exchange (RM4.2m) and ii) gain on disposal of  assets held for sale (RM27.6m), TSH 1QFY23 core profit slumped 54% YoY  to RM30.8m. Nevertheless, the weak results were in line with our and the  consensus full-year expectations, accounting for 22.6% and 23.4%  respectively. In view of the recent slump in CPO prices, we cut our FY23-25F  earnings forecasts by 14%-24%. Downgrade to Neutral with a lower TP of  RM1.10 based on 13x FY24 EPS. No dividend was declared for the quarter.

• 1QFY23 revenue (QoQ: -12%, YoY: -26%). Revenue was weaker at  RM250m, mainly attributed to lower plantation revenue. Plantation revenue dropped 25.3% YoY to RM233m, dragged by a decline in CPO  prices despite a marginal increase production. 1QFY23 average CPO  prices slipped from RM4,779/mt to RM3,555/mt while average PK prices  tumbled from RM3,950/mt to RM1,770/mt. 1QFY23 FFB production improved marginally to 199,334mt, mainly led by stronger production  from Indonesia. Sales contribution from non-core businesses slid 32%  YoY to RM17.2m as a result of low demand for wood products and  closure of bio-mass power plant for maintenance.

• 1QFY23 core earnings tumbled to RM30.8m. 1QFY23 earnings would  have been better if not because of the hefty Indonesian export levy and  duty on CPO amounting to RM26m. Stripping out the exceptional items,  the Group’s core earnings tumbled 54% YoY to RM30.8m, dragged by  weaker plantation earnings and higher production cost. Other businesses saw a narrower loss of RM3.3m, down from RM4.3m. Meanwhile,  earnings contribution from its 21.9%-owned Innoprise Plantations sank from RM6.3m to RM2m.

• Outlook guidance. Management sees a FFB production growth of 5%  for FY23 following the disposal of two plantation estates in Sabah. CPO  production cost is expected to increase to increase to RM2,000-2,200/mt  this year, likely due to a slump in palm kernel credit in tandem with the  weaker CPO prices. The Group plans to replant about 500ha this year  and it sees no major increase in the major areas compared to last year.  Finally, management has allocated RM90m capex for FY23 to cater for  infrastructure, property and plant upgrade.

Source: PublicInvest Research - 23 May 2023