- We maintain SELL on TSH Resources with an unchanged fair value of RM2.95/share. Our fair value implies an FY15F PE of 16x. TSH is currently trading at FY14F PE of 21.4x and FY15F PE of 18.7x.

- The group’s 1QFY14 core net profit (excluding forex gain of RM16.7mil) was in line with our forecast but slightly below consensus estimates.

- TSH’s gross profit grew by 44.8% YoY to RM98.3mil in 1QFY14 on the back of an 11.2% fall in cost of sales. We reckon that this was driven by a decline in fertiliser costs.

- In spite of higher CPO production and price, the group’s YoY turnover growth in 1QFY14 was only 2.3% due to lower milling sales in Sabah following a decline in production. Revenue of the wood division also slid by 24.3% YoY to RM9.9mil in 1QFY14.

- TSH realised an average CPO price of RM2,543/tonne in 1QFY14, 18.3% higher than the average price of RM2,149/tonne in 1QFY13.

- FFB production increased by 21.5% YoY to 156,742 tonnes in 1QFY14. However, CPO output rose by a smaller 10.7% due to a fall in the amount of FFB processed in Sabah.

- TSH’s FFB production climbed by about 36.5% YoY in Indonesia in 1QFY14 compared with a 46.8% YoY increase achieved in 1QFY13. Indonesia is estimated to account for 80% of group FFB output.

- Improvement in CPO price and lower production costs helped to boost the palm and biointegration division’s EBIT from RM30.7mil in 1QFY13 to RM59.6mil (ex-forex gain) in 1QFY14. EBIT margin improved from 12.2% in 1QFY13 to 23.2% in 1QFY14.

- Share of profits in the Wilmar TSH refinery eased by 7.9% YoY to RM7mil in 1QFY14. We believe that this was due to higher cost of feedstock.

- EBIT of the wood products division was relatively flat at RM0.5mil as exports were lower.

- Net gearing stood at 68.2% as at end-Mar 2014 versus 73.3% as at end-FY13. TSH’s gross cash amounted to RM146.3mil while borrowings totalled RM932mil. 

Source: AmeSecurities