TSH Resources (TSH) 1H23 headline net profit of RM40mn (-74% YoY) trailed our and consensus expectations, accounting 34% and 30% of full-year forecast, respectively. We tweaked our FY23-24 earnings lower, to account for (1) higher CPO and lower PK price assumptions in FY23-24 following our revision in palm products price assumptions for the sector, (2) higher operational cost assumptions at the group level, and (3) lower FFB output assumptions. Post earnings revision, we maintain our HOLD rating on TSH with a new TP of RM1.01; based on historical low 3-year average P/BV of 0.7x as we roll our valuation to FY24.

• Below expectations. TSH’s 1H23 headline net profit of RM40mn (- 74% YoY) trailed our and consensus expectations, accounting 34% and 30% of full-year forecast, respectively. The differences between reported and core PATAMI are the fair value (FV) changes on biological assets, FV changes on derivatives financial instruments, unrealized loss/gain on foreign exchange and gain on disposal of assets held for sale and PPE.

• QoQ. On quarterly basis, revenue and core PBT increased by 3% and 21% QoQ respectively. This was due to higher contribution from Palm Products segments as a result of seasonally higher FFB production and sales volume of CPO and PK as well as share of joint venture amounting to RM1.6mn as compared to a share of loss of RM6.8mn in 1Q23.

• YoY/YTD. PATAMI’s YoY/YTD came in lower, slipped by 82% and 74% on the back of a 40% and 33% drop in revenue to RM257mn and RM507mn respectively, no thanks to 1) lower average selling price (ASP) realised of CPO and PK, 2) lower share of profits contributions from associate of RM1.7mn/RM3.8mn (-73% YoY/ - 71% TYD) and lower of share of JV of RM1.6mn in 2Q23 (-86% YoY) and loss from JV amounting to RM53mn as opposed to gain of RM15.4mn in 1H22, and 3) lower gain on disposal of BCAP’s uncertified land of RM27.6mn in 1H23 against gain on disposal of Ladang Ong Yah Ho and Lahad Datu palm oil mill totalling RM53.2mn in 1Q22 and RM31.8mn in 2Q22 (1H22: RM85mn).

• Outlook. We are cautiously optimistic on TSH earnings as this could be capped by higher operating costs, lower-than-expected production and volatile palm product prices.

• Our call. Following the result, we tweak our FY23/24F earnings forecast to RM97mn and RM95mn from RM117mn and RM115mn previously. Maintain a HOLD call with a new TP of RM1.01 (RM1.02 previously), based on historical low 3-year average P/BV of 0.7x and TSH’s average FY22/FY24’s BV/share of RM1.44. We advise investor to take any stock price rally as an opportunity to lock in their profit.

Source: BIMB Securities Research - 24 Aug 2023