• Overview. TSH’s 1Q20 core PBT came-in higher yoy/qoq to RM43.9m, as revenue increased 24%/7% to RM257.4m on account of higher ASP of CPO realised. Palm product segment profit jumped 47% qoq and 219% yoy respectively to RM56m, as margin increased to 25% on higher ASP realized of CPO and PK during the period (Table 2 and 3). Higher loss on foreign exchange of RM26.2m, resulted in a 33% qoq decrease in PBT of RM21.4m against RM32.3m registered in 4Q19.
• Against estimates: Above. Adjusted for the FV loss/gain on forex and derivatives, TSH’s 1Q20 core profit came-in above our estimates, making up 40% of full year forecast.
• Outlook. We believe earnings growth would be driven by expansion in production and improvement in palm product prices. In FY20, we are projecting FFB production to rise by 8% to 964k tonnes, on the back of estimated ASP of CPO of RM2,250/MT against RM1,995/MT realised in FY19. One caveat – earnings could be at risk of seeing slower growth if ASP of palm products is insufficient to compensate for the lower than expected weak production, slower demand and higher costs.
• Our call. Given the near-term headwinds within the industry and economic landscape, we lowered our FY20 earning forecast to RM50.4m (-20%) as we adjust lower our average CPO price forecast to RM2,250/MT from RM2,480/MT previously. As TSH’s share price has fallen by 42% YTD, we now see potential upside from here in the stock with upside of 13%. Upgrade to BUY with new TP of RM1.02 (RM1.21 previously) based on P/B of 1.0x and historical 3-yrs avg. TSH’s BV/share of RM1.02.

Source: BIMB Securities Research - 22 May 2020