TSH Resources- Boosted By Higher CPO Prices

Date: 21/08/2020

Source  :  PUBLIC BANK
Stock  :  TSH       Price Target  :  1.40      |      Price Call  :  BUY
        Last Price  :  1.09      |      Upside/Downside  :  +0.31 (28.44%)

TSH Resources saw its 1HFY20 core earnings double to RM38.7m on the back of an increase in both CPO prices and FFB production. The encouraging results made up 52% of our full-year expectation but surpassed consensus expectation, making up 61.9%. Given the current CPO price momentum and higher FFB production in the 2H, we expect to see another set of strong results in the 3QFY20. No dividend was declared for the quarter. Maintain Outperform with an unchanged TP of RM1.40 based on 24x FY21 EPS.

  • 2QFY20 revenue (QoQ: -18.2%, YoY: +13.2%). The stronger sales of RM210.5m in the current quarter were mainly driven by plantation (YoY: +15.9%), which was partly offset by other businesses (-1.7% YoY) The increase in plantation sales was mainly led by an increase in both CPO prices and FFB production. 2QFY20 average CPO prices improved from RM1,901/mt to RM2,099/mt. Meanwhile, 2QFY20 FFB production climbed 9% YoY to 219,082mt (1HFY20: 426,809mt, +5.2% YoY) on the back of stronger contribution from Malaysia (+15.5% YoY) and Indonesia (+8.1% YoY). Meanwhile, revenue from other businesses weakened to RM28.6m due to lower contribution from the bio-integration segment.
  • 2QFY20 core earnings jumped 58.4% YoY to RM14.1m. Stripping out the non-core items, namely, insurance claim (RM13m), inventories written off (RM10.7m), net foreign exchange (RM6.3m) and other non-core items, the Group’s core earnings jumped 58.4% YoY to RM14.1m, mainly driven by stronger plantation earnings, up 36.6% YoY. Plantation EBIT margin improved from 9% to 10.7%. Earnings from other businesses dipped from RM9.2m to RM7.5m, dragged by weaker earnings contribution form bio-integration business as its production was impacted by lower supplies of raw material.
  • Bullish outlook. The recent fire incident that occurred at the Ekowood International factory had resulted in damages amounting to RM12.4m to the property, plant and equipment and inventories. During the quarter, TSH had sought an insurance claim of RM13.2m with regards to the losses suffered from the fire incident. Since hitting a low of RM2,047/mt in mid-April, CPO prices have made a strong comeback, rising more than 36% to the current level of RM2,800/mt. We are assuming a CPO price of RM2,500/mt in FY20, which is below the current spot prices. Generally, we are expecting CPO prices to weaken in 2H on the back of stronger CPO production

Source: PublicInvest Research - 21 Aug 2020

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