• Overview. 2Q19 core profit came-in lower yoy to RM8.9m as revenue dropped 20% to RM186m on account of lower ASP of CPO in the palm product segment compounded by loss on share from associate and, higher finance costs and depreciation. On qoq basis, the weaker core profit was a result of lower contribution from palm product segment as revenue was effected by decline in ASP of palm products.

• Key highlights. 2Q19 saw operating profits for other segment increased by 30% yoy (+19%yoy for 6-mths period) to RM9.2m (RM19.0m for 6- mths period) mainly attributed by higher profit contribution from cocoa division and bio-integration division (Table 2).

• Against estimates: below. 1H19 core profit was below ours and consensus’ estimates at 41%/39% of full year forecast. Loss on share from associate, higher finance costs and depreciation, and lower contribution from palm product segment contributed to the poorer results (Table 2). Palm product margins dropped to 9.4% from 17.0% in 1H18 mainly due to lower ASP realised of CPO and PK (Table 3).

• Outlook. We are positive on the long-term prospect of TSH given its 1) young age profile of 8.6 years (Malaysia: 14yrs and Indonesia: 8yrs), 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%.

• Our call. Maintain HOLD with new TP of RM0.91 (RM1.00 previously) based on P/B target of 0.9x. We have revised our FY19 and FY20 earnings forecast lower to RM38.8m (-16%) and RM47.5m (-7%) respectively as we adjusted our ASP of palm products lower by 5%-10%.

Source: BIMB Securities Research - 22 Aug 2019