Investment Highlights

• We maintain HOLD on TSH Resources with an unchanged fair value (FV) of RM1.20/share. Our FV is based on FY23F PE of 18.0x. We ascribe a three-star ESG rating to TSH.

• TSH is not expected to be affected by the prosperity tax in Malaysia as we forecast its FY22F net profit to be less than the threshold level of RM100.0mil. In addition, most of the group’s palm earnings are from Indonesia.

• We have not accounted for the impact of the RM248.0mil proposed disposal of 2,933ha of oil palm estates and a palm oil mill to Sharikat Keratong Sdn Bhd in TSH’s earnings yet. The proposed disposal is expected to be completed in 1QFY22.

• TSH’s annualised 9MFY21 core net profit (ex-unrealised forex loss of RM15.0mil) was 15.1% above our forecast and 12.4% above consensus estimates. We have raised TSH’s FY21E net profit by 16.0% to account for a lower effective tax rate of 24% vs. 26% and a higher palm EBIT margin.

• TSH’s core net profit would have been higher in 3QFY21 if the group did not record fair value losses of RM16.1mil on commodity futures contracts. Unrealised and realised losses on commodity contracts amounted to RM24.9mil in total in 9MFY21.

• TSH’s core net profit grew by 144.8% YoY to RM120.5mil in 9MFY21 underpinned by higher palm product prices and production. On a negative note, TSH said that Indonesia’s CPO export tax and levy had brought down its revenue by RM184.6mil in 9MFY21 compared to RM28.2mil in 9MFY20.

• TSH’s average CPO price realised surged by 42.7% to RM3,357/tonne in 9MFY21 from RM2,377/tonne in 9MFY20. FFB production growth was 11.0% YoY in 9MFY21 driven mainly by Indonesia. TSH’s FFB output in Indonesia climbed by 14.2% YoY in 9MFY21 while in Malaysia, FFB production slipped by 14.1%. Indonesia accounted for 91.3% of TSH’s FFB production in 9MFY21.

• Comparing 3QFY21 against 2QFY21, TSH’s core net profit rose by 18.6% to RM47.7mil on the back of a low effective tax rate of 18.1%. At the gross profit level however, TSH’s earnings slid by 5.5% QoQ to RM116.2mil in 3QFY21. We attribute this to a 6.2% fall in FFB production and fair value losses on commodity contracts. Average CPO price was RM3,586/tonne in 3QFY21 vs. RM3,441/tonne in 2QFY21.

Source: AmInvest Research - 24 Nov 2021