• Maintain HOLD (TP: RM1.01) TSH Resources Bhd (TSH) FY23 net profit of RM95.0mn (-79% YoY) was within our and consensus estimates by 98% and 96%, respectively. TSH’s FY23 earnings was impacted by the moderation in productions, decline in average selling prices of CPO and PK, lower profit contribution from associates and losses from its JV in downstream segment in Sabah. Nonetheless, the others segment reported a lower operating loss of RM11.8mn (+70% YoY) primarily due to fair value (FV) gain on forest planting expenditure of RM0.3mn versus FV loss of RM37.2mn recorded in FY22. 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. Note that TSH’s BOD has approved a first and final DPS of 2.5sen for FY23 (FY22: 10.5sen), translating a DY of 2.3% at current market price. Maintain a HOLD call on TSH, with a TP of RM1.01; based on P/BV of 0.7x and average FY22/24F BV/share of RM1.45.

• Key highlights. In 4QFY23, revenue declined by -7% YoY to RM260.9mn, primarily driven by 1) lower contribution from the Palm Products segment, attributable to lower ASP of CPO and PK despite higher volume of CPO sold, 2) decreased revenue from the Wood division, mainly due to low demand for wood products and the cessation of the Cocoa division in 4Q23. Lower revenue also led to a decrease in profit, mainly due to reduced contribution from the Palm Products segment, attributed to lower ASP of CPO and PK, as well as a RM5.5mn reduction in profit contribution from JV, which amounted to RM2.97mn during the quarter.

• Outlook. Despite TSH's strong financial position, with a book value per share of RM1.48 and net gearing of 0.03x as at 31 Dec 2023, we maintain a cautious stance on TSH's earnings outlook, given the potential impact of higher operating costs, lower-than-expected production levels, and volatile palm product prices. Note that there is a potential of lower production in Indonesia estates given a lag impact of dry weather and reduce in harvestable area due to disposal of estates in FY23.

Source: BIMB Securities Research - 23 Feb 2024