• TSH’s 9M17 core net profit of RM80.1m came broadly within our expectations, making up 79% of our estimates but trailed consensus estimates by 11%.

• Core PBT was up 60% yoy to RM131.0m, as revenue surged to RM803.6m (+28% yoy) due to higher contributions from palm product segment as well as associated company.

• The higher operating profit is attributable to higher ASP realized as well as higher FFB and CPO production.

• We remain positive on TSH and maintain our FY17 and FY18 earnings forecast with TP of RM2.20.

• Maintain BUY.

Earnings within expectation

TSH’s 9M17 revenue surged 28% yoy to RM803.6m as higher production and ASP for CPO contributed to higher revenue in palm product segment. A higher sale of wood product also aided in the higher revenue - although there was lower electricity and steam sales by the bio-integration division. Core PBT improved significantly yoy due to higher ASP of CPO realized, coupled with higher FFB and CPO production, as well as profit contribution from associated company.

Although the Group registered a slightly lower 3Q17 revenue of RM256.8m (-0.5% qoq), core PBT was 35% higher qoq mainly due to i) higher FFB production ii) higher share of profit from associate of RM2.7m (+29% qoq); and iii) gain of RM2.4m from jointly controlled entities (2Q17: loss RM1.3m).

Higher production and ASP of palm product

For 9M17, palm product division posted revenue and segment profit of RM710.9m (+31% yoy) and RM156.4m (+66% yoy) respectively mainly due to a higher average CPO price realized of RM2,727/MT (9M16: RM2,356/MT) and higher FFB and CPO production. As such, plantation margin during the period improved to 22% from 17% in 9M16.

Positive on TSH outlook, maintain BUY

We maintain our FY17 and FY18 earnings forecast with an unchanged target price of RM2.20, based on FY18 EPS and target PER 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 given its 1) young age profile; 2) enlarged unplanted land bank size of 57,423 hectares; and 3) potential yield enhancement as it has a high ratio of immature to young matured estates of 64%. Maintain BUY.

Source: BIMB Securities Research - 23 Nov 2017