Results

• 1QFY12/14 core net profit of RM30.1m (qoq: +9.9%; yoy: - 15.3%) accounted for 21.3% and 22.9% of consensus and our full-year forecasts. We consider the results within expectations, as we expect FFB production to catch up in the subsequent quarters.

Deviations

• -

Dividends

• -

Highlights

• YoY… 1QFY15 core net profit declined by 15.3% to RM30.1m, and this was dragged mainly by lower FFB production (-8.6%) and average CPO price realized (- 13.4%).

• QoQ… Although FFB production declining by 9.3% qoq to 143.3k mt, 1QFY15 core net profit rose by 9.9% to RM30.1m as lower FFB production was more than mitigated by slight improvement in average CPO price realized (by 1.7% to RM2,201/mt), lower losses from the wood product division, and lower effective tax expense.

• FFB production in 1QFY15 declined by 8.6% yoy to 143.3k mt, due to a combination of cyclical low crop yielding period, exacerbated by a combination of lagged impact from drought in 2014 and dry weather in the East Malaysia in early-2015. For the full-year, we are still projecting FFB production to increase by circa 7% to 686k mt.

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 cash flow from alternative power plant; and (3) Favourable long term outlook of the oil palm business.

Negatives

• High net gearing and relatively stretched valuation.

Valuation

• SOP-derived TP maintained at RM2.18 (see Figure 4).
• 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 - 21 May 2015