• Overview. TSH’s 3Q20 earnings came-in higher yoy at RM24.1m as revenue increased 7% to RM194.2m on account of higher ASP realised of CPO, aided by lower finance costs and higher share from associate. On nine-month period, the strong profit was a result of higher contribution from palm product segment as revenue increased significantly on higher ASP realised of palm products coupled with higher share of contribution from associate and lower operating expenses.
• Key highlights. 1H20 FFB increased 5.2% yoy to 426.8k tonnes, nonetheless, for the 10-month period 2020, the Group achieved FFB production growth of 0.1% yoy to 745k tonnes of which Indonesian estates registered growth of 0.3% yoy to c. 680k tonnes whilst Malaysian estates recorded a drop of 16.7% to c. 65k tonnes – indicating that 2H20 production will possibly be lower or grow at minimal or flat than 2H19. Given the scenario, we tweaked our FY20 earnings forecast to RM60m from RM63m previously to reflect our adjustment on lower FFB and CPO production assumption and 2% increase in ASP of palm products.
• Against estimates: Inline. TSH’s 9M20 core profit was within our estimates, making up 73% of full year forecast.
• Outlook. We expect performance of Palm Product segment in the coming quarter to sustain given that current CPO prices are trading at multi-year high of RM3,511.50/MT as of yesterday quote, 17th Nov 20. 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: 9.0 years; Malaysian: 13.2 years; and Group: 9.8 years).
• Our call. Maintain BUY with unchanged TP of RM1.23 based on P/B of 1.1x and FY21 BV/share of RM1.12. We are expecting a better performance in subsequent quarters banking on higher ASP of palm productsthat has risen to multi-year high and trading above RM3,000/MT.

Source: BIMB Securities Research - 19 Nov 2020