• Overview. TSH Resources (TSH) 3Q22 core PBT came in lower after expanding only at 42% YoY and 47% QoQ to RM52.9mn, no thanks to lower average selling price (ASP) realised of CPO and PK as well as  17% increase in Indonesia export levy and duty on CPO. This was also added by lower share of profits contributions from associate and joint ventures amounting to RM3.29mn (-38% YoY and -52% QoQ) and RM7.80mn (-9% YoY and -28% QoQ) respectively.

• Against estimates: Below. TSH’s 9M22 earnings performance was below our estimate with core PBT of RM235.3mn (+11% YoY) only made up 62% of our full year forecast - being impacted by RM31.7m  increase in export levy and duty on CPO from Indonesia amounting to RM216.3mn, higher cost of sales of RM233.6mn (+39% YoY) and higher operating loss in others segment of RM39.9mn (>100% YoY) – Table 2. The variance in core profit was also due to 1) a gain on disposal of Ladang Ong Yah Ho, Ladang Gomantong and Lahad Datu  Palm Oil Mill amounting to RM386.3mn, 2) impairment of PPE of  RM56.1mn and 3) all fair value changes and unrealised forex gain/loss.

• Dividend. An interim dividend of 8.0sen per share was declared for  FY22, payable on 21 December 2022. At the current market price, this translates into a DY of 7.5%.

• Outlook. We are of the view that TSH earnings could be capped by higher operating costs and volatile palm product prices as well as Indonesian decisions in biodiesel levy and export structure, and PO  export policy, if any. This may increase TSH earnings volatility given circa 90% of its production come from the Indonesian estates.

• Our call. Following the results, we tweaked our FY22 earnings forecast higher to RM432mn from RM243.3mn previously, as we revisit our assumptions on margins, cost, EI and expenses to be more reflective of current and future expectations. Core PATAMI is expected to be flattish for the year however. Maintain a HOLD call with Target Price of RM1.19 based on historical low 3-yrs avg. P/BV of 0.8x and avg. FY23/FY24’s BV/share of RM1.49. We advise investor to take any stock price rally as an opportunity to lock in their profit.

Source: BIMB Securities Research - 24 Nov 2022