Investment Highlights

• We maintain HOLD on TSH Resources with a higher fair value of RM1.20/share (vs. RM1.10/share previously), based on a rolled-forward FY25F PE of 15x, instead of FY24F originally. The PE of 15x is the 5-year average for small-cap planters. We ascribe a neutral 3-star ESG rating to TSH.

• We consider TSH’s core net profit of RM19.9mil (ex-forex gain of RM0.2mil) to be within our expectations and consensus estimates. TSH’s net profit is expected to improve in the coming quarters on the back of a recovery in FFB production.

• TSH’s core net profit surged to RM19.9mil in 1QFY24 from RM6mil in 1QFY23, underpinned by a smaller loss in the TSH/Wilmar refinery, lower interest expense and a drop in effective tax rate. The group also benefited from the absence of expenses from the secondary listing in Singapore.

• Palm division’s operating profit slid by 8.6% YoY to RM46.2mil in 1QFY14 due to a fair value loss on biological assets of RM4.7mil. Excluding the fair value adjustment, palm earnings would have been flat at RM50.9mil in 1QFY24.

• Average realised CPO price was stagnant at RM3,587/tonne in 1QFY24 vs. RM3,555/tonne in 1QFY23. FFB production edged down by 1.4% YoY in 1QFY24.

• According to TSH, the Indonesian export tax and levy affected revenue by a smaller RM20.3mil in 1QFY24 compared to RM26mil in 1QFY23.

• TSH recognised a smaller share of net loss of RM1.7mil in the TSH/Wilmar refining joint venture in 1QFY24 vs. RM6.8mil in 1QFY23. We attribute the decline in losses to timely purchases of feedstock.

• The “Others” division (biomass and wood flooring products) recorded a larger loss of RM3.8mil in 1QFY24 vs. RM3.3mil in 1QFY23. We believe that the wood flooring segment is still suffering from poor demand as the housing industry in Europe has been affected by high interest rates.

• TSH is currently trading at a fully-valued FY25F PE of 14x, which is higher than its 2-year average of 12x.

Source: AmInvest Research - 21 May 2024