Investment Highlights

• We maintain SELL on TSH Resources with an unchanged fair value of RM1.40/share. Our fair value for TSH is based on FY23F PE of 18x. We ascribe a 3-star ESG rating to TSH.

• TSH’s annualised 1QFY22 core net profit (excluding disposal gains of RM53.2mil and unrealised forex loss of RM4.1mil) was 7% above our forecast but within consensus estimates. We raise TSH’s FY22F net profit by 10% to account for a higher average CPO price of RM4,500/tonne vs. RM4,000/tonne previously.

• TSH’s core net profit climbed to RM46.9mil in 1QFY22 from RM32.7mil in 1QFY21 on the back of a lower effective tax rate, higher share of net profit in associates and stronger palm product prices. Effective tax rate declined to 7.9% in 1QFY22 from 32.1% in 1QFY21 due to a reversal of deferred tax expenses.

• TSH’s core net profit could have been stronger in 1QFY22 if the group had not recorded realised losses on futures contracts of RM26.5mil (1QFY21: loss of RM8mil).

• Average CPO price realised climbed to RM4,779/tonne in 1QFY22 from RM3,007/tonne in 1QFY21. TSH’s palm revenue would have been higher in 1QFY22 if not for Indonesia’s CPO export tax and levy. The CPO export and levy had affected the group’s revenue by RM45.9mil in 1QFY22 compared with RM52.6mil in 1QFY21 and RM43.6mil in 4QFY21. The impact of the CPO export tax and levy was smaller in 1QFY22 vs. 1QFY21 as sales volume dropped.

• TSH’s FFB production slid by 13.2% YoY in 1QFY22. In spite of this, we are keeping our FFB growth assumption of 5% for FY22F as TSH’s FFB production is expected to recover in the coming months on the back of seasonal factors. TSH’s FFB production in Indonesia declined by 14.2% YoY in 1QFY22 while in Malaysia, FFB output inched down 1%.

• Share of net profit in the TSH/Wilmar palm refinery rose to RM4.5mil in 1QFY22 from RM1.4mil in 1QFY21 underpinned by timely purchases of feedstock.

• The “others” division (biomass, wood flooring and cocoa) recorded a loss of RM4.3mil in 1QFY22 vs. an EBIT pf RM0.7mil in 1QFY21 due to the expiry of a power purchase agreement (PPA) of a biomass plant. A new PPA has since been executed and the sale of electricity from the biomass plant resumed in March 2022.

Source: AmInvest Research - 25 May 2022