• TSH’s 1Q17 core net earnings of RM26.1m came broadly within expectations, accounting for 26% and 20% of ours and consensus’ full year estimates respectively.

• Core PBT surged 63% yoy to RM41.1m, while revenue increased by 43% to RM288.5m, mainly due to higher contribution from palm segment and associated company.

• Group FFB production increased by 10% yoy to 149k tones, as yield started to recover from the lagged effects of dry weather for both Sabah and Indonesia operations.

• Banking on higher production in Indonesia and better palm product prices in 1H17, we maintain our FY17 and FY18 earnings forecast with TP of RM2.00.

Earnings within expectation

TSH’s core earnings is within our expectation and consensus estimates. Revenue surged 43% yoy (18% qoq) to RM288.5m as higher ASP for CPO contributed to higher revenue in palm product segment. A higher sale of cocoa product also aided in the higher revenue. Core PBT improved significantly yoy resulting from higher ASP of CPO realized coupled with higher FFB and CPO production and profit contribution from associated company. However core PBT was lower qoq mainly due to i) lower profit contribution from jointly controlled entities; ii) higher finance costs; and iii) lower FFB production. Finance cost increases more than double qoq is believed to be due from adjustment in finance cost capitalized. This resulted in an increase in finance cost charged to income statement.

Higher ASP of palm product

In 1Q17, palm product division posted revenue and segment profit of RM252.5m (+50% yoy) and RM50.5m (+55% yoy) respectively due to a higher average CPO price realized of RM2,985/MT (1Q16: RM2,144/MT). Meanwhile, FFB and CPO production increased by 10% and 4% yoy to 149k MT and 60.3k MT respectively, as yield recovered from the after-effect caused by the El-Nino. Plantation margin improved to 20% from 19.3% in 1Q16.

Maintain HOLD recommendation

We maintain our FY17 and FY18 earnings forecast with unchanged TP of RM2.00, based on FY17 PER multiple of 26.7x. We ascribed a valuation of +1 SD above its 5-year average PER of 20x, given its position as a pure planter with long-term earnings growth potential. This is justified by its 1) young age profile of 8 years; 2) enlarged unplanted land bank size of 67,853 hectares; and 3) potential yield enhancement as it has a high ratio of immature to young matured estates of 63%. Maintain HOLD.

Source: BIMB Securities Research - 25 May 2017