Investment Highlights

• We maintain HOLD on TSH Resources with an unchanged fair value of RM1.05/share, which is based on a FY24F PE of 15x - the 5-year average for small planters. We ascribe a 3-star ESG rating to TSH.

• TSH’s annualised 1HFY23 core net profit (ex-disposal gain of RM27.6mil and forex loss of RM11.1mil) was 18% below our full-year forecast and consensus. The group’s results fell short of our expectations due to a lower-thanestimated share of earnings in associate/joint venture and a higher-than-anticipated effective tax rate. We have reduced TSH’s FY23E net profit by 18% to account for this.

• TSH’s core net profit plunged by 80.9% YoY to RM23.5mil in 1HFY23, dragged by lower palm product prices, losses in the TSH/Wilmar jointly-owned refinery and a higher effective tax rate.

• We believe that like the other planters, TSH’s cost of CPO production also increased in 1HFY23. TSH’s effective tax rate rose to 33.3% in 1HFY23 from 9.4% in 1HFY22 as certain expenses were not tax-deductible.

• TSH’s plantation EBIT slid by 40.9% YoY to RM101.9mil in 1HFY23. Average realised CPO price shrank by 28.7% to RM3,523/tonne in 1HFY23 from RM4,941/tonne in 1HFY22. Also, TSH’s FFB production edged down by 3.6% YoY in 1HFY23.

• Indonesia’s CPO export tax and levy brought TSH’s revenue down by a smaller RM59.8mil in 1HFY23 compared with RM146.4mil in 1HFY22 due to a reduction in tax rates.

• Comparing 2QFY23 against 1QFY23, TSH’s plantation EBIT rose by 1.7% to RM51.4mil as stronger FFB production compensated for weaker palm product prices. Average realised CPO price was RM3,493/tonne in 2QFY23 vs. RM3,555/tonne in 1QFY23. FFB production expanded by 11.4% QoQ in 2QFY23.

• The “Others” division (biomass and wood flooring) reported a smaller loss of RM5.2mil in 1HFY23 vs. RM6mil in 1HFY22. The division was affected by a drop in demand for wood flooring products from the EU and USA in 1HFY23.

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

Source: AmInvest Research - 24 Aug 2023