Investment Highlights

• We maintain SELL on TSH Resources with an unchanged fair value of RM0.85/share, based on an FY23F PE of 15x. We ascribe a neutral 3-star ESG rating to TSH.

• TSH’s 9MFY22 core net profit (ex-disposal gains of RM386mil, unrealised forex loss of RM39mil and impairments/fair value losses of RM91mil) was 10% below our Forecast But Within Consensus.
• TSH’s core net profit fell short of our estimates as palm EBIT fell by 26% QoQ in 3QFY22 on an increase in CPO production costs and a fall in CPO price. We reduce TSH’s FY22E net profit by 8% to account for the higher production costs.
• Comparing 9MFY22 against 9MFY21, however, TSH’s core net profit climbed by 29% to RM156mil on the back of robust palm product prices and a decline in effective tax rate.

• TSH’s effective tax rate dropped to 3% in 9MFY22 from 24% in 9MFY21 due to the reversal of temporary differences and recognition of deferred tax assets.

• Average realised CPO price increased by 28% to RM4,286/tonne in 9MFY22 from RM3,357/tonne in 9MFY21. On a negative note, TSH’s FFB production declined by 3% YoY in 9MFY22.

• TSH’s plantation earnings would have been stronger in 9MFY22 if the group was not affected by Indonesia’s CPO export tax and levy. The CPO export tax and levy brought down TSH’s revenue by RM216mil in 9MFY22 vs. RM185mil in 9MFY21.

• The “Others” division (cocoa and biomass activities) recorded a larger loss of RM5mil in 9MFY22 (excluding fair value loss of RM35mil) compared with RM1.4mil in 9MFY21. This was due to the expiry of the biomass plant’s power purchase agreement, which was renewed in 2QFY22.

• Comparing 3QFY22 against 2QFY22, TSH’s net profit slid by 57% due to lower CPO prices and higher production costs. Average realised CPO price shrank by 36% to RM3,234/tonne in 3QFY22 from RM5,076/tonne in 2QFY22.

• TSH is currently trading at an unjustified FY23F PE of 19x, higher than its 2-year average of 14x.

Source: AmInvest Research - 24 Nov 2022