Riding on the strong CPO price performance and a steep FFB production growth from Indonesia, TSH saw its 1HFY21 earnings doubling to RM78.4m. The results beat ours and the street expectations, making up 73% and 71% of full-year estimates, respectively. No dividend was declared for the quarter. In view of the stronger-than-expected results, we revise up our FY21-23 earnings forecasts by 15%-38% after raising our profit margin and FFB production growth to 19% (previously 7%). Consequently, our TP also increases from RM1.46 to RM1.75 based on 24x FY22 EPS. Maintain Outperform call.
- 2QFY21 revenue (QoQ: +55%, YoY: +46%). The impressive topline of RM307m was mainly boosted by stronger plantation sales despite weaker contribution from non-core businesses. Plantation revenue jumped 84% YoY to RM335m, driven by stronger both CPO prices and higher production. Average CPO prices advanced from RM2,099/mt to RM3,441/mt, a massive growth of 64% YoY. FFB production rose 16.5% YoY to 255,151mt, led by stronger production in Indonesia (+21.1%) despite weaker production seen in Sabah (-15.3%). Non-core sales tumbled 38.1% YoY to RM17.7m, mainly dragged by weaker cocoa sales.
- Core earnings surged to RM45m. it would have been a record breaking quarter if not because of the additional Indonesian export levy and duty on CPO amounting to RM72.2m. the Group recorded core earnings of RM45m, bolstered by stronger plantation earnings as CPO and palm kernel prices rallied. Plantation EBIT margin jumped from 10.6% to 28.2%. On the other hand, earnings contribution from other businesses registered a loss of RM1.6m, as cocoa business was negatively affected by the Covid-19 pandemic due to lower consumption of cocoa butter globally. Meanwhile, earnings contribution from its 21.9%-owned Innoprise Plantations doubled to RM4.5m.
- Outlook guidance. In contrast to the earlier estimates of 7-11%, it is understood that the Group is now targeting higher FFB production growth of 18-20%. The steep FFB production growth achieved in Indonesia was surprising with the management attributing it to the i) young age profile, ii) consistent manuring programme and iii) high productivity backed by sufficient workforce. Meanwhile, we understand that the Group has a 2- month forward selling practice for its CPO production. Only a small replanting area was achieved during the quarter. Based on our sensitivity analysis, every RM100/mt change in CPO price would translate to 7-10% increase in the Group’s bottomline.
Source: PublicInvest Research - 25 Aug 2021