Investment Highlights

• We maintain HOLD on TSH Resources with a higher fair value of RM1.10/share vs. RM1.05/share previously. We have raised TSH’s FY24F net profit by 5% to account for a stronger CPO price assumption of RM3,700/tonne compared to RM3,500/tonne originally.

• Our revised fair value is based on FY24F PE of 15x, which is the 5-year average for small planters. We ascribe a neutral 3-star ESG rating to TSH.

• TSH’s annualised 9MFY23 core net profit (ex-disposal gain of RM27.6mil and forex losses of RM7.9mil) was 9% below our forecast and 19% short of consensus. TSH’s results disappointed due to a high effective tax rate of 32.7% and expenses of RM5.8mil relating to a secondary listing in Singapore. We have reduced TSH’s FY23E net profit by 7% to account for these.

• TSH’s 9MFY23 core net profit dived by 67.9% to RM49.9mil as palm product prices fell and the TSH/Wilmar palm refinery swung into losses. Also, TSH’s effective tax rate rose to 32.7% in 9MFY23 from 3.4% in 9MFY22 as certain expenses were not tax-deductible.

• TSH recognised a share of net loss of RM6mil in TSH/Wilmar palm refinery in 9MFY23 in contrast to a net profit of RM23.2mil in 9MFY22. We attribute the losses to untimely purchases of feedstock and price competition from Indonesia.

• Plantation EBIT shrank by 28.8% YoY to RM173.5mil in 9MFY23. Average realised CPO price slid to RM3,465/tonne in 9MFY23 from RM4,286/tonne in 9MFY22. FFB production declined by 3.2% YoY in 9MFY23.

• Indonesia’s CPO export tax and levy affected TSH’s revenue by a smaller RM86.7mil in 9MFY23 compared to RM216.3mil in 9MFY22 as the government reduced tax and levy rates.

• The “Others” division (biomass and wood flooring) reported a larger loss of RM9mil in 9MFY23 vs. RM5.4mil in 9MFY22. Demand for wood flooring products in the EU and US declined in 9MFY23 as house renovations and purchases were affected by high interest rates.

• TSH is currently trading at a premium FY24F PE of 14x, which is higher than its 2-year average of 12x.

Source: AmInvest Research - 24 Nov 2023