-  We maintain SELL on TSH Resources with an unchanged fair value of RM2.95/share. Our fair value implies an FY15F PE of 18.2x.

-  We have reduced TSH’s FY14F EPS by 11.2% to account for lower share of profits in the TSH-Wilmar refinery.

-  Share of profits in the TSH-Wilmar refinery swung from a positive RM7mil in 1QFY14 to a negative RM2.3mil in 2QFY14. This is in line with the trend of margin erosion recorded by the other refineries in Malaysia.

-  Share of losses in the refinery contributed to an estimated 5.6% QoQ fall in TSH’s core pre-tax profit in 2QFY14.

-  Also, TSH chalked up an effective tax rate of 12.9% in 2QFY14 versus 20.5% in 1QFY14 underpinned by incentives in respect of the Pioneer and Bionexus status.

-  TSH reported a 42.3% YoY increase in gross profit in 1HFY14 on the back of a 13.3% expansion in turnover. Gross profit margin rose from 9.2% in 1HFY13 to 20.4% in 1HFY14.

-  Revenue of the palm and bio-integration division improved 16.5% from RM454.9mil in 1HFY13 to RM529.9mil in 1HFY14 on the back of higher CPO price and production. EBIT margin inched up from 13.0% in 1HFY13 to 24.0% in 1HFY14.

-  Average CPO price realised was roughly RM2,503/tonne in 1HFY14, 15.0% higher than the average price of RM2,177/tonne achieved in 1HFY13.

-  On a QoQ basis, TSH’s average CPO price weakened 3.1% to RM2,463/tonne in 2QFY14.

-  FFB production climbed by 27.4% YoY to 319,417 tonnes in 1HFY14. Comparing 2QFY14 against 1QFY14, TSH’s FFB output increased by 3.8%.

-  We believe that TSH’s FFB production in Indonesia improved by 39.1% YoY in 1HFY14 while Sabah achieved a 4.8% decline in output. Indonesia accounted for about 80% of the group’s FFB output.

-  EBIT of the wood products division inched down from RM1.5mil in 1QFY13 to RM0.4mil in 1HFY14. Revenue shrank by 21.9% YoY to RM20.4mil in 1HFY14 due to lower demand from Europe.

-  Net gearing stood at 72.7% as at end-June 2014 compared with 68.2% as at end-Mar 2014. Gross borrowings amounted to RM916.0mil.

Source: AmeSecurities