• TSH’s FY17 core net profit of RM101.5m came broadly within our expectations, making up 99.8% of our estimates.

• Core PBT was up 38% yoy to RM179.7m, as revenue surged 23% to RM1.07b due to higher contributions from palm product segment and associated company, Innoprise Plants.

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

• Proposed a first and final single tier dividend of 2sen for FY17 which would translate to DY of 1.3x (FY16: 2sen).

• We maintain our FY18 and FY19 earnings forecast with TP of RM1.81. Maintain HOLD.

Earnings was broadly in-line

TSH’s FY17 revenue surged 23% yoy to RM1,073.5m as higher FFB and CPO production as well as 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 from the bio-integration division. Core PBT improved 38% yoy to RM179.7m mainly due to higher ASP of CPO realized, coupled with higher FFB and CPO production, as well as profit contribution from associated company (+29% yoy to RM9.3m). Hence, margin improved to 21.8% from 15.5% in FY16.

Plantation margin rose to 23% in FY17 vs. 19% in FY16

Palm product division posted higher revenue and segment profit of RM946.2m (+26% yoy) and RM213.2m (+46% yoy) respectively in FY17, mainly due to a higher ASP of CPO realized of RM2,701/MT (FY16: RM2,454/MT) and higher FFB and CPO production from Malaysia and Indonesia operations (Table 2). FFB production from Plantation-Indonesia increased 22% to 598,150MT, whilst Plantation-Malaysia increased slightly by 3% to 107,947MT. Hence, increased plantation margin to 23% from 19% in FY16. On the other hand, other segment reported lower profit of RM10.7m (-46% yoy) on account of lower sales of electricity and steam from bio-integration division aided with impairment loss on inventories, plant and machineries.

Lower production from Indonesia operations.

On qoq basis, although the Group registered a slightly higher 4Q17 revenue of RM270m (+5% qoq), core PBT was 5.7% lower at RM48.7m, mainly due to i) lower FFB and CPO production, and ii) operating loss of RM0.8m in others segment as opposed to RM3.5m profit in 3Q17. The loss in other segment resulted from a lower sale of electricity and steam from bio-integration division as well as impairment loss on the inventories, plant and machineries. The lower contribution from plantation segment in 4Q17 was attributable from a lower FFB and CPO production from Plantation-Indonesia that recorded a negative qoq growth of 25% and 29% respectively to 142k MT and 25K MT (Plantation-Malaysia: +19% for FFB and +18% for CPO).

Proposed dividend

TSH has recommended a first and final single-tier dividend of 2sen for FY17 which if approved would translate to DY of 1.3x (FY16: 2sen).

Positive on TSH outlook, maintain HOLD

We are positive on the long-term prospect of TSH given its 1) young age profile of 8 years (Malaysia: 14.6yrs and Indonesia: 7yrs), 2) enlarged unplanted land bank size of c. 57k ha, and 3) potential yield enhancement as it has a high ratio of immature to young mature estates of c. 64%. Maintain FY18 and FY19 earnings forecast with an unchanged target price of RM1.81, based on FY18 EPS and target PER of 22x (5-years average forward PER).

Source: BIMB Securities Research - 28 Feb 2018