• Maintain HOLD (TP: RM1.03) TSH Resources Bhd (TSH) 9M23 net profit of RM69.5mn (-83% YoY) came in within our forecast but trailed consensus estimates by 72% and 60%, respectively. TSH’s earnings performance has gained traction, with core profit growing by 65% QoQ to RM28.6mn, primarily attributed to higher FFB production and sales volume of CPO and PK, offsetting the impact of lower average selling prices (ASP) of palm products during the period. Despite a challenging business environment affecting its key segmental growth, we anticipate further recovery for the company. However, potential cost pressures may arise due to elevated USD/MYR currency exchange rates and higher input material costs, such as diesel and fertilizer. We maintain our HOLD call on TSH, with a TP of RM1.01; based on P/BV of 0.7x and avg. FY22/24F BV/share of RM1.45.

• Key highlights. In 3QFY23, both revenue and core PBT rose by +16.4% QoQ/13.7% YoY and +65% QoQ/7% YoY respectively to RM298.7mn and RM56.6mn, mainly driven by higher ASP of CPO and increased sales volume of CPO during the period. It’s noteworthy that CPO production experienced a notable increase of +20.2% QoQ and +2.1% YoY, reaching 67,148 tonnes. Simultaneously, PK production surged to 14,333 tonnes, marking a +27% QoQ and 5% YoY growth. This increase can be attributed to the improvement in the oil extraction rate (OER) of CPO and PK, reaching 20.61% (+6.8% QoQ and 3.5% YoY) and 4.4% (+9.7% QoQ and 10.3% YoY) respectively.

• Earnings Revision. No changes at this juncture.

• 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. Looking ahead, we foresee there might be a potential cost pressure due to the elevated USD/MYR currency exchange rates and higher input materials costs, such as diesel and fertiliser.

Source: BIMB Securities Research - 24 Nov 2023