Investment Highlights

• We maintain HOLD on TSH Resources with a lower fair value  of RM1.05/share vs. RM1.24/share previously. Our fair value  for TSH is now based on a rolled-forward FY24F PE of 15x,  the 5-year mean for small planters. We ascribe a neutral 3- star ESG rating to TSH.

• We reduce TSH’s net profit by 16.7% for FY23F and 21.7% for  FY24F to account for lower palm EBIT margin and smaller  share of earnings in joint venture and associate (mainly 22%- owned Innoprise Plantations). 

• Annualised, TSH’s 1QFY23 core net profit of only RM6mil  (ex-forex loss of RM4.2mil and disposal gain of RM27.6mil)  was below our earlier FY23F earnings and consensus’ by  20%-32%. As a comparison, the group recorded a core net  profit of RM46.9mil in 1QFY22.

• TSH’s core net profit dived by 87.2% YoY to RM6mil in  1QFY23 due to the fall in palm product prices, higher costs  of production, a loss in the TSH/Wilmar palm refinery,  smaller share of earnings in Innoprise and an increase in  effective tax rate. 

• TSH’s effective tax rate surged to 30% in 1QFY23 from 7.9%  in 1QFY22 due to the non-deductibility of certain expenses  and non-recognition of deferred tax assets.

• TSH’s share of loss at the TSH/Wilmar palm refinery was  RM6.8mil in 1QFY23 in contrast to a gain of RM4.5mil in  1QFY22. We attribute the loss to untimely purchases of  feedstock.

• Plantation EBIT shrank by 33.7% to RM50.5mil in 1QFY23  from RM76.2mil in 1QFY22. Average CPO price slid to  RM3,555/tonne in 1QFY23 from RM4,779/tonne in 1QFY22.  FFB production inched up by 0.7% YoY in 1QFY23.

• Indonesia’s CPO export tax and levy brought down TSH’s  revenue by a smaller RM26mil in 1QFY23 compared with  RM45.9mil in 1QFY22. This was due to a reduction in the  CPO export tax and levy by the Indonesian government in  1QFY23.

• TSH is currently trading at a pricey FY24F PE of 15x, higher  than its 2-year average of 12x.

Source: AmInvest Research - 23 May 2023