• Overview. TSH registered a higher 1Q22 yoy PBT of RM115.8m against RM39.0m in 1Q21, as higher contribution from the Palm Product segment negated the loss incurred from other segments as well as from higher cost of sales of RM198.6m as opposed to RM148.3m incurred in 1Q21. This was also aided by a gain of RM53.2m on disposal of an estate and palm oil mill, and a higher share of profits contributions from associate and joint ventures amounting to RM6.29m (+234%) and RM4.48m (+214%) respectively. On a qoq basis, lower core earnings were due to 1) a lower sales volume during the period and 2) a lowershare of profits contributions from associates and joint ventures totalling RM10.8m against RM30.1m registered in 4Q21.

• Key Highlights: The loss of RM4.3m in the other segment was due to the sale of electricity generated by the bio-mass plant being discontinued during 3Q21, following the expiry of the erstwhile power purchase agreement (PPE). Nonetheless, a new PPE has since been executed and the supply of electricity by the bio-mass plan has recommenced in March 2022.

• Against estimates: Above. TSH’s 1Q22 core profit of RM63.9m was above our estimates, making up 38% of our full-year forecast.

• Outlook. TSH is set to sustain strong earnings given current higher CPO prices and expected 5%-7% improvement in FFB production of 965k-1.0m tonnes in FY22-FY23 against 919k tonnes achieved in FY20 to be supported by the expansion in production from Indonesian estates with more planted areas come into maturity and harvesting due to better age profile. Nevertheless, TSH may not enjoy a full benefit of higher CPO price given c. 90% of its production are from the Indonesian estates amid a lower ASP realised due to unattractive biodiesel levy and export structure as well as PO export policy.

• Our call. Following the results, we revised higher our FY22/FY23 earnings forecast to RM283.7m and RM193.4m respectively from RM168.3m and RM150.4m previously; as we revisit our assumptions on ASP of CPO and PK, margins, cost and expenses to be more reflective of our current and future expectations. We have raised our FY22 and FY23 CPO price assumptions to RM4,500/MT/ and RM3,200/MT respectively from RM3,600/MT and RM3,000/MT previously. Maintain a HOLD call with a new Target Price of RM1.55 against RM1.49 previously based on P/BV of 1.19x and BV/share of RM1.30.

Source: BIMB Securities Research - 25 May 2022