Investment Highlights

• We maintain HOLD on TSH Resources with a higher fair value of RM1.40/share (vs. RM1.20/share previously). Our fair value is based on an unchanged FY23F PE of 18.0x. We ascribe a three-star ESG rating to TSH.

• We have raised TSH’s FY22F net profit significantly to account for a higher average CPO price assumption of RM4,000/tonne vs. RM3,000/tonne previously. For FY23F, we have assumed an average CPO price of RM3,000/tonne compared with RM2,800tonne originally.

• We have not accounted for the impact of the RM907.0mil proposed disposal of 16,148ha of land in Sabah and Kalimantan in TSH’s FY22F net profit. The proposed disposals of landbank may result in a decline in TSH’s FFB production of more than 5% on a full year basis.

• TSH’s FY21 core net profit (ex-unrealised forex loss of RM13.1mil) was 13.9% above our forecast and 13.4% above consensus estimates. TSH’s core net profit was strong in 4QFY21 driven by a 165.6% QoQ surge in the share of net profit in the Wilmar/TSH palm refinery and a lower effective tax rate of 13.2% (3QFY21: 18.1%). On the operating profit level however, TSH’s earnings slid by 7.8% QoQ to RM60.8mil in 4QFY21 dragged by higher operating expenses.

• TSH’s core net profit jumped to RM180.1mil in FY21 from RM87.8mil in FY20 underpinned by higher CPO prices and production. We believe that TSH’s core net profit would have been higher in FY21 if the group had not recorded fair value losses of RM44.0mil on commodity futures contracts. Also, according to TSH, Indonesia’s CPO export tax and levy had affected its revenue by RM228.1mil in FY21 (FY20: RM43.3mil).

• Average CPO price realised surged to RM3,570/tonne in FY21 from RM2,478/tonne in FY20. FFB production growth was 1.4% in FY21. TSH’s FFB production in Indonesia rose by 2.6% in FY21 but in Sabah, FFB output declined by 9.0%. Indonesia accounted for 90.5% of TSH’s FFB production in FY21 while Malaysia made up the balance 9.5%.

• Share of net profit in the TSH/Wilmar joint venture increased to RM35.9mil in FY21 from RM24.2mil in FY20 on the back of timely purchases of feedstock.

Source: AmInvest Research - 25 Feb 2022