• Overview. TSH Resources (TSH) 4Q22 core PBT came in lower which slipped by 53% YoY to RM42.3mn, no thanks to 1) lower average selling price (ASP) realised of CPO and PK, 2) lower profit contribution from Malaysia’s palm products segment subsequent to the disposal of two estates and mill in Malaysia in early of the year, and 3) lower share of profits contributions from associate and joint ventures amounting to RM2.1mn (-71% YoY) and RM8.0mn (-65% YoY) respectively. On a QoQ basis, lower core earnings were due to lower profit contributions from palm products segments on account of higher operating costs and lower PK product price realised as well as lower share of profits contribution from associates amounting to RM2.1mn against RM3.3mn in 3Q22.

• Against estimates: Below. TSH’s FY22 earnings performance was below our estimate with core PBT of RM281mn (-7% YoY) made up 87% of our full year forecast. The deviation was mainly due to our overestimation on CPO and PK  price realised forecast and underestimation on production of FFB, CPO and PK projection. The variance in core profit was due to 1) a gain on disposal of Ladang  Ong Yah Ho, Ladang Gomantong and Lahad Datu Palm Oil Mill amounting to RM384.9mn, 2) impairment of PPE of RM56.1mn and 3) all fair value changes and unrealised forex gain/loss.

• Dividend. The board proposed a final DPS of 2.5sen for FY22 and if approve will bring total DPS payable for the year to 10.5 sen (FY21: 3.0sen). At the current market price, this translates into a DY of 9.8%.

• 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 on biodiesel levy and export structure, and PO export policy. Hence, may increase  TSH earnings volatility given circa 90% of production come from the Indonesian estates.

• Our call. Given challenging business outlook, we tweak our FY23 earnings forecast lower to RM147mn from RM193mn previously, as we revisit our assumptions on production, margins, costs and expenses to be more reflective of current and future expectations. Maintain a HOLD call with new TP of RM1.17 versus RM1.19 previously, based on historical low 3-year average P/BV of 0.79x  and average FY22/FY24’s BV/share of RM1.48. We advise investor to take any stock price rally as an opportunity to lock in their profit.

Source: BIMB Securities Research - 24 Feb 2023