• Overview. TSH Resources (TSH) registered a higher core PBT of RM99.1mn that jumped by 44.3% YoY thanks to higher contribution from the Palm Product segment that negated the loss incurred from other segments as well as from higher cost of sales which jumped by 40.2% YoY to RM258.8mn. This was also aided by lower finance cost (-31% to RM7.2m) and, higher share of profits contributions from associate and joint ventures amounting to RM6.7m (+51%) and RM10.9m (+252%) respectively. On a qoq basis, higher core earnings were due to 1) a higher average selling prices (ASP) of CPO and sales volume during the period and 2) a higher share of profits contributions from associates and joint ventures totalling RM17.7mn against RM10.8mn registered in 1Q22.

• Against estimates: Below. TSH’s 1H22 core PBT of RM182.4m was below our estimates, being impacted by RM21.54m increase in export levy and duty on CPO in Indonesia amounting to RM146.4mn, higher cost of sales and higher operating loss of RM6.04mn in others segment.

• Key Highlights. The loss in 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). Additionally, once the plant recommenced in March 2022, the plant has to be shut down due to maintenance – resulting in lesser operating days.

• Outlook. Although we are optimistic that TSH could sustain strong earnings given current higher CPO prices and improvement in FFB production in FY22/23 (given young age profile of c. 11years), further upside is capped by Indonesian decisions in biodiesel levy and export structure as well as PO export policy, if any. This may increase TSH earnings volatility given circa 90% of its production are from the Indonesian estates.

• Our call. Following the results, we tweaked our FY22 earnings forecast lower to RM243.3mn from RM283.7mn previously, as we revisit our assumptions on margins, cost and expenses to be more reflective of current and future expectations. Maintain a HOLD call with a new Target Price of RM1.19 versus RM1.55 previously based on historical low 3-yrs avg. P/BV of 0.8x and avg. FY23/FY24’s BV/share of RM1.49.

Source: BIMB Securities Research - 23 Aug 2022