Results

• FY14 core net profit of RM139.3m came in within our expectation, exceeding our forecast by 0.2%-pts. Against the consensus estimates, the results accounted for 99.4% of street estimates.

Deviations

• -

Dividends

• Proposed first and final single tier DPS of 2.5 sen/share, in line with our forecast.

• YTD… FY14/12 core net profit increased by 7.4% to RM139.3m mainly on the back of higher CPO production (+10.4%), higher average realized CPO price (RM2,338/mt) and lower unit cost of production, which altogether more than offset a higher effective tax rate (20.1% vs. 5.1% in the previous year).

• QoQ… 4QFY14 core net profit declined by 4.3% to RM27.4m mainly due to lower CPO production (-7%), which more than offset lower finance cost and a turnaround at the JV operation.

• Despite the unfavourable weather condition in 4QFY14, FFB and CPO in FY14 still rose by 18% and 10.4% to 641k mt and 345.3k mt respectively and this was due mainly to more planted land bank reaching maturity (thanks to its overall young age profile of circa 7 years years). Going forward we are projecting TSH’s FFB production to grow by circa 11% to 710.8k mt, which will in turn sustain its earnings in FY15.

Risks

• Weaker-than-expected FFB production and OER;
• A sharp increase in production cost; and
• A sharp decline in vegetable oil prices.

Forecasts

• Maintained. Based on our sensitivity analysis, every RM100 rise in CPO price assumption will lift our FY15 earnings forecast and TP by 8.4% and 6.1%, respectively.

Rating

HOLD

Positives

• - (1) Strong FFB output growth; (2) Stable cashflow from alternative power plant; and (3) Favourable long term outlook of the oil palm business.

Negatives

• High net gearing and relatively stretchedvaluation.

Valuation

• SOP-derived TP maintained at RM2.09 (see Figure 5).
• While we continue to like TSH for its young tree profile (which in turn indicates strong FFB output growth going forward), we see limited upside potential to its share price given the current weak CPO price sentiment (TSH’s earnings have relatively high sensitivity to CPO price changes). Maintain Hold recommendation.

Source: Hong Leong Investment Bank Research - 25 Feb 2015