• TSH’s 9M18 core profit of RM44.5m was within our expectation but trailed consensus estimates by c.35%.

• Core PBT was down by 27% yoy to RM81.9m as revenue slipped 15% to RM684.8m due to lower contribution from palm product segment as well as associate company, Innoprise Bhd.

• We tweaked our FY19 earnings forecast lower to RM61.9m from RM87m as we believe declining ASP of palm products would continue.

• Revised TP to RM1.07 (RM1.20 previously) and maintain HOLD.

Earnings within estimate

Overall, TSH’s 9M18 core earnings of RM44.5m came-in within our expectation. Although FFB and CPO production is significantly higher in 9M18, revenue declined 15% yoy to RM685m mainly due to lower ASP realised of palm products (Table 3). Consequently, core PBT declined to RM82m from RM113m in 9M17, dragged by lower contribution from plantation segment due to lower average CPO price realised. The lower profit was compounded by 1) 13% higher finance costs to RM33m, and 2) lower contribution from share of profit from an associate, Innoprise of RM1.7m (-74% yoy). Higher contribution from others segments, i.e. cocoa products due to better cocoa products prices, and share of profit of JV, TSH-Wilmar Refinery of RM2.97m (+76% yoy) failed to negate the impact of lower average CPO price.

Higher production qoq

On qoq basis, core PBT increased 8% to RM33.7m mainly due to higher FFB and CPO production, and lower costs of sales of RM142m (-11.5% qoq). The increase in FFB and CPO production by 14% and 2% respectively to 250.2k MT and 78.3k MT, and, higher share of profit of an associate of RM0.9m (+71% qoq) aided to the improved result.

Change in FY19 earnings forecast

Given an unexciting near and mid-term earnings prospects on lower trend of palm product prices and higher costs of doing business, we adjusted our margin and ASP lower and hence revised our earnings forecast for FY19 to RM61.9m from RM87m previously.

Valuation and recommendation.

We peg a target price of RM1.07 (RM1.20 previously) and maintain our HOLD recommendation for TSH. Our target price is based on price to book target of 1x and historical 3-years average TSH’s BV/share.

Source: BIMB Securities Research - 30 Nov 2018