- Maintain HOLD on TSH Resources with an unchanged fair value of RM2.35/share. Our fair value implies an FY15F PE of 26x. In the past five years, TSH’s PE ranged from a low of 8.9x to a high of 27.0x. Average PE was 16.6x.

- TSH’s FY14 net profit was within our expectations but below consensus estimates. Included in TSH’s FY14 net profit were various impairment and fair value losses amounting to RM15.4mil. Additionally, TSH recognised unrealised forex losses of RM13.9mil.

- Comparing 4QFY14 against 3QFY14, TSH’s gross profit declined by 9.3% to RM82.1mil due to higher cost of sales and a 3.9% fall in FFB production. FFB output in Indonesia shrank by 5.0% QoQ in 4QFY14 while in Sabah, FFB production was flat.

- We believe that tree stress from the bumper harvest in FY13 took effect in 4QFY14. Also, the dry weather in

Kalimantan in October 2014 might have affected FFB yields in Indonesia.

- TSH’s gross profit expanded 23.3% to RM373.6mil in FY14 on the back of higher CPO price and lower production costs per tonne.

- Average CPO price realised inched up from RM2,251/tonne in FY13 to an estimated RM2,335/tonne in FY14. Average CPO price realised was RM2,165/tonne in 4QFY14 versus RM2,170/tonne in 3QFY14.

- TSH’s average CPO price realised is lower than MPOB prices due to its exposure to Indonesia. According to MPOB, average CPO price was RM2,408 in Malaysia in 2014, 1.7% higher than the average price of RM2,367/tonne in 2013.

- TSH recorded a FFB production growth of 18.5% in FY14. We believe that the group’s FFB output in Indonesia expanded by 25.3% in FY14. Indonesia accounted for about 80% of group FFB production in FY14.

- Share of profits in the TSH/Wilmar refinery fell by 72.7% from RM23.4mil in FY13 to RM6.4mil in FY14 due to

negative margins in 2QFY14 and 3QFY14.

- Refining margins stabilised in 4QFY14. The unit swung into a positive RM3.2mil in 4QFY14 after being RM1.6mil in the red in 3QFY14.

- Net gearing stood at 81.6% as at end-FY14 versus 73.6% as at end-FY13. Net debt amounted to RM976.3mil as at end-FY14.

Source: AmeSecurities