• Overview. TSH’s 2Q21 core PBT came in higher yoy at RM72.7m against RM19.9m in 2Q20, as higher contribution from Palm Product segment negated the lower contribution from bio-integration and cocoa division, as well as the additional cost incurred on Indonesia export levy and duty on CPO of RM63.1m to RM72.2m vs. RM9.1m in 2Q20. This was also aided by lower finance costs of RM10.4m (-16%) and higher share of profits contributions from associate (+105%) amounting to RM4.5m. On quarterly basis, the higher earnings were due to higher contribution from Palm Product segment as earnings increased more than 100% to RM94.6m mainly due to higher average selling price realised of CPO and improvement in FFB and CPO production – Table 2 and 3.
• Against estimates: Above. TSH’s 1HFY21 core profit before tax of RM121m came in above our estimates, making up 84% of full year forecast. Despite being impacted by RM105.5m increase in export levy and duty in Indonesia amounting RM124.9m, higher margin from Palm Product segment and share of profit contribution from an associate, Innoprise, contributed to the stronger results.
• Outlook. TSH is highly exposed to weakness/strength in palm product prices as approximately more than 90% of its revenue and earnings are derived from palm products segment. On that score, we foresee that TSH is set to record strong earnings given higher CPO prices should see TSH fetching better margins, backed by the expected 10% improvement in FFB production of 997k/1.0m tonnes in FY21/22 against 906k tonnes achieved in FY20.
• Our call. Given the encouraging results, we revised our FY21/22 earnings forecast higher to RM120.5m and RM108.5m respectively from RM90.8m and RM87.7m with unchanged Target Price of RM1.23 (Price/Book of 1.1x and BV/share of RM1.12); as we revisit our assumption on ASP of palm products, margins, cost and expenses to be more reflective to current and future expectations. We have raised our FY21/22 ASP forecast for CPO to RM3,280/MT and RM2,700/MT respectively from RM2,950/MT and RM2,500/MT previously. Maintain BUY.

Source: BIMB Securities Research - 25 Aug 2021