- We are upgrading TSH Resources from SELL to HOLD with a higher fair value of RM2.38/share. Our fair value implies an FY15F PE of 22x.

- TSH’s 9MFY14 core net profit was within our expectations but below consensus estimates. TSH’s gross profit rose 36.6% YoY to RM291.4mil in 9MFY14 underpinned by improvements in CPO price and palm oil production.

- On a quarterly basis however, the group’s earnings momentum weakened in 3QFY14 due to a fall in CPO price and an increase in effective tax rate.

- TSH’s gross profit declined 11.7% QoQ to RM90.6mil in 3QFY14 as revenue contracted by 18.2%.

- Average CPO price shrank 11.9% from RM2,463/tonne in 2QFY14 to RM2,170/tonne in 3QFY14.

- FFB production was relatively flat QoQ in 3QFY14. FFB output of the Indonesia plantation division was unchanged QoQ in 3QFY14.

- On a YoY basis, TSH’s average CPO price realised improved 8.9% from RM2,197/tonne in 9MFY13 to RM2,392/tonne in 9MFY14.

- TSH’s FFB production grew by an estimated 27.2% YoY in 9MFY14. About 80% of the group’s FFB production in 9MFY14 came from Indonesia. The Indonesia unit recorded an estimated 36.5% YoY expansion in FFB output in 9MFY14.

- Share of losses in the jointly-owned palm refinery narrowed from RM2.3mil in 2QFY14 to RM1.6mil in 3QFY14.

- Comparing 9MFY14 against 9MFY13, TSH’s share of profits in the refinery fell from RM20.3mil to RM3.2mil. The negative refining margin is in line with industry trends.

- Wood products division was marginally in the red in 9MFY14 versus a small profit of RM2.2mil in 9MFY13. The unit’s revenue slid by 18.0% YoY to RM33.0mil in 9MFY14 as demand from Europe softened. The division also recorded impairments on inventories and receivables amounting to RM1.5mil in total.

- Net gearing stood at 76.8% as at end-September 2014 compared with 72.7% as at end-June 2014. Net debt amounted to RM872.9mil as at end-September 2014.

Source: AmeSecurities