Riding on the rally in CPO prices and FFB production growth from Indonesia, TSH saw its FY21 core earnings tripling to RM214m, bolstered by stronger plantation earnings on the back of stronger CPO prices. The impressive results exceeded our and the street full-year expectations, making up 126% and 140%, respectively. No change to our forecasts as we have recently raised our numbers in tandem with higher CPO price assumptions. A first and final DPS of 3sen was proposed for the quarter (vs FY20: 1.5sen). Maintain Outperform call with an unchanged TP of RM1.81 based on 15x FY23 EPS.

• 4QFY21 revenue (QoQ: +6.2%, YoY: +36.2%). The stronger sales of RM328m were mainly boosted by stronger plantation sales. Plantation revenue jumped 34% YoY to RM298m, driven by stronger CPO prices despite a steep decline in FFB production. 4QFY21 average CPO prices advanced from RM2,741/mt to RM4,347/mt, a massive growth of 58.8% YoY. FFB production fell 23% YoY to 196,425mt, dragged by weaker production in Indonesia (-26%), which was partially offset by stronger production in Sabah (+9% YoY). Non-core sales jumped 61.7% YoY to RM30.4m.

• 4QFY21 earnings soared to RM70m. The 4QFY21 earnings would have been even better if not because of the additional hefty Indonesian export levy and duty on CPO amounting to RM43.6m (FY21: RM228.1m). The Group recorded core earnings of RM70m, bolstered by stronger plantation earnings as CPO and palm kernel prices rallied. Plantation EBIT margin jumped from 17.4% to 25.9%. On the other hand, other businesses saw a third consecutive quarterly loss of RM10.9m, 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 RM22.8m.

• Outlook. FY22 FFB production growth is expected to remain at 7%-11%. On worker shortage issue, in our view, TSH is least affected amongst the plantation companies given than more than 90% of their plantation landbank is located in Indonesia.However, they are subject to the hefty Indonesian CPO export levy and duty amounting to USD375/mt. On top of it, they are now required to sell 20% of their CPO products at a steep discounted price of RM2,715/mt under the domestic market obligation in a bid to cool down the cooking oil prices. Meanwhile, we understand that the Group has a 2-month forward selling practice for its CPO production. Based on our sensitivity analysis, every RM100/mt change in CPO price would translate to 7-10% increase in the Group’s bottomline. Lastly, the allocated capex for FY22 is about RM50m-60m, mainly catered for the maintenance of immature area and replanting activities.

Source: PublicInvest Research - 25 Feb 2022