• TSH’s reported a PATAMI of RM13.5m (yoy: -24%) in 1Q19, as margin was squeezed by lower ASP of CPO and PK.
• On quarterly basis, PBT was higher by 44% to RM16.5m attributable to higher contribution from palm segment and JV, as well as 74% higher foreign exchange gain amounting to RM4m.
• Overall, results came in within our expectations making up 22% of our full year forecast.
• We tweaked our earnings forecast for FY19 and FY20 lower with new Target Price of RM1.00 (RM1.06 previously). Maintain HOLD

Earnings within expectation

TSH ended its 1Q19 with a decline in revenue by 8% yoy to RM207.6m (qoq: -6%), dragged by lower average CPO and PK selling price. The lower ASP is in tandem with industry trend of declining palm products prices. Accordingly, PBT declined to RM16.5m from RM28.3m in 1Q18 despite a higher growth in FFB production, aided by a loss from share of profit from an associate of RM0.73m (<100% yoy) and 9% higher in operating expenses of RM71.6m. Higher finance costs of RM13.5m against RM10.5m in 1Q18 also aided to the lower results. Overall, PATAMI was within ours and consensus estimate.

Lower CPO and PK selling price

TSH’s plantation segment performance was in the doldrums, as higher production of FFB and CPO failed to offset the lower ASP of CPO and PK. The ASP of CPO and PK for 1Q19 declined 17.5% and 40.6% respectively to RM1,911/MT and RM1,214/MT from RM2,316/MT and RM2,043/MT in 1Q18. On the other hand, FFB production increased 12.9% yoy to 205k MT, as more planted areas coming into maturity and harvesting due to better age profile. Hence, the segment’s margin fell to 9.7% from 14.5%. On the other hand, higher profit of RM9.8m vs. RM3.7m in 1Q18 from other segment was due to higher profit contribution from bio-integration and cocoa segment.

Change in earnings forecast.

We have done some house-keeping and tweaked our earnings forecast lower for FY19 and FY20 to RM46.3m (-10%) and RM50.8m (- 16%) respectively. Of note, we are positive on the long-term prospect of TSH given its 1) young age profile of 8.6 years (Malaysia: 14.4yrs and Indonesia: 7.7yrs), 2) enlarged unplanted land bank size of c. 57.5k hectares, and 3) potential yield enhancement as it has a high ratio of immature to young mature estates of c. 60%.

Valuation and recommendation.

We peg a new target price of RM1.00 (RM1.06 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. Accumulate on weakness.

Source: BIMB Securities Research - 28 May 2019