Riding on Stronger CPO Prices

Date: 22/05/2020

Source  :  PUBLIC BANK
Stock  :  TSH       Price Target  :  1.03      |      Price Call  :  HOLD
        Last Price  :  1.10      |      Upside/Downside  :  -0.07 (6.36%)

TSH Resources saw its 1QFY20 earnings double to RM24.7m on the back of stronger CPO prices. The strong set of results accounted for 42% and 37% of our and consensus expectations, respectively. Despite the stronger-than expected results, we keep our earnings forecasts unchanged as we expect results to be weaker in the subsequent quarters due to a sharp correction in CPO prices. No dividend was declared for the quarter. Maintain Neutral call with an unchanged TP of RM1.03.

  • 1QFY20 revenue (QoQ: +6.6%, YoY: +24%). The stronger sales of RM257.4m in the first quarter were mainly driven by plantation (YoY: +22.7%) and other segments (YoY: +33%). The increase in plantation sales was mainly led by both higher CPO prices and FFB production. 1QFY20 average CPO prices surged from RM1,911/mt to RM2,599/mt. Meanwhile, 1QFY20 FFB production climbed 1.6% YoY to 207,727mt as Indonesian FFB production, which made up 90% of group production, saw an increase of 5.4% YoY while Sabah production dipped 24.6% YoY. Meanwhile, contribution from other segment rose 33% YoY to RM35.5m on the back of stronger wood sales after recovering from the fire incident.
  • Core earnings surged to RM24.7m. The strong earnings growth was bolstered by plantation segment, which jumped 3-fold to RM55.8m while earnings from other segment nearly dipped 30.6% YoY to RM6.8m, dragged by lower earnings contribution from bio-integration business as its production was impacted by lower supplies of raw materials. Driven by stronger CPO selling prices, plantation earnings margin improved from 9.6% to 25.1%.
  • Outlook. Its plantation and palm oil mill in Sabah experienced disruption for nearly 15 days as state government imposed lock-down due to the Covid-19 outbreak. It is worth noting that CPO production from Sabah contributed about 39% of total CPO production. We think impact of the temporary suspension was slightly negative to the Group. Meanwhile, the FFB production is expected to grow by 8%-12% YoY. The allocated capex for FY20 is about RM80m-100m, mainly for the immature area and normal maintenance. The total mature area is expected to increase by 1,000ha this year to 41,275ha.

Source: PublicInvest Research - 22 May 2020

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