• Overview. TSH’s 1Q21 earnings came in higher yoy at RM30.8m, as higher contribution from palm products segment negated the lower contribution from bio-integration and cocoa division, as well as additional cost incurred on Indonesia export levy and duty on CPO of RM25.6m to RM31.9m vs. RM6.2m in 1Q20. This was also aided by lower finance costs of RM9.8m (- 19%) and higher share of profits contributions from associate (+11%) amounting to RM1.9m. On quarterly basis, the lower earnings were due to lower contribution from others division, aided by higher cost of sales and lower share of profits from JV and associate.
   
• Key highlights. TSH’s 1Q21 FFB production grew 9.8% yoy to 228.1k tonnes, of which Indonesia estates registered growth of 12.3% to 210,822 tonnes whilst Malaysian estates recorded a decreased of 13.3% to 17,266 tonnes. Moving forward, we believe production would recover gradually supported by favourable weather conditions and production cycle moving into higher productive month. We understand that TSH’s FFB production in Sabah has recovered by 6% mom to 6.7k tonnes in April 2021 on the back of 8.5% increase in Group FFB production of 88.2k tonnes.

• Against estimates: Inline. TSH’s 1QFY21 core PBT was within our estimates, making up 26% of full year forecast.

• Outlook. We believe earnings growth would be driven by expansion in production from Indonesian estates with more planted areas come into maturity and harvesting due to better age profile (Indonesia: 10.0 yrs.; Malaysian: 12.7 yrs.; and Group: 10.6 yrs.). Of note, FFB production in Indonesia grew 8.7% mom to 81.5k tonnes in April 2021.

• Our call. Maintain earnings forecast with unchanged TP of RM1.23 based on Price/Book of 1.1x and BV/share of RM1.12. We now see the stock reaching closer to our valuation with an upside of 2.5% from the current price. Hence, we changed our recommendation from BUY to HOLD.

Source: BIMB Securities Research - 20 May 2021