• Overview. TSH’s 2Q20 core PBT came-in higher yoy at RM19.9m as revenue increased 13% to RM210.6m on account of higher production and ASP of CPO and PK, aided by lower finance costs and higher share from associate and JV. On quarterly basis, the weaker core PBT was a result of lower contribution from palm product segment as revenue was affected by decline in ASP of palm products and higher operating expenses.
   
• Against estimates: Above. TSH’s 1H20 core profit came in above our estimates, making up 77% of full year forecast. Higher margin from Palm Product segment and share of profit of associate, Innoprise, contributed to the stronger results (Table 2 and 3).

• Outlook. We expect performance of Palm Product segment in the coming quarter to sustain given that current palm product prices are trading above 2019 prices. We believe earnings growth would be driven by production from Indonesian estates, as more planted areas come into maturity and harvesting due to better age profile (Indonesia: 9.5 years; Malaysian: 14 years; and Group: 10.2 years). Off note, in 1H20, FFB production from Indonesian estates increased 7% to 378.8k MT, whilst Malaysia estates dropped 5% to 48.0k MT. We are projecting that FFB production to grow by 8% to 964k tonnes in FY20, with estimated ASP of CPO of RM2,380/MT against RM2,250/MT as earlier estimated (FY19: RM1,995/MT).

• Our call. Maintain BUY with new TP of RM1.23 (RM1.02 previously) based on P/B of 1.1x and FY21 BV/share of RM1.12. We tweaked our FY20/FY21 earnings forecast higher to RM63m and RM74m respectively from RM50m and RM67m previously, as we expect better performance in subsequent quarters banking on higher ASP of palm products. Nonetheless, we are mindful of missing our new earnings target if the higher ASP of palm product is insufficient to compensate for risk of possible weaker production, slower demand and higher costs.

Source: BIMB Securities Research - 21 Aug 2020