Results

• 4Q16 core net profit of RM29.4m (qoq: +55%; yoy: +15.5%) took FY16 core net profit to RM87.1m (-9.3%). The results came in broadly within our expectation, accounting for 94.8% of our forecast.
• Against consensus, the results came in below, at only 85.2% of consensus estimate.

Deviations

• Broadly in line.

Dividend

• None.

Highlights

• YoY… 4Q16 core net profit increased by 15.5% to RM29.4m mainly on the back of higher average CPO price realized (+38.7%) and lower finance costs, which more than mitigated lower FFB production, and weaker associate and JV contributions.
• QoQ… 4Q16 core net profit rose by 55% to RM29.4m mainly on the back of higher average CPO price realized, FFB production recovery and lower finance costs.
• YTD… Despite revenue rising by 9.2% to RM872.5m, FY16 core net profit declined by 9.3% to RM87.1m, as higher palm product prices were more than offset by: (1) Lower FFB production; (2) lower electricity sale at the bio- integration segment (resulted from lower FFB production, which in turn generated less biomass products, and hence electricity); and (3) Higher finance costs.
• FFB production increased by 27% qoq to 192.4k mt, boosted by seasonally higher production season, which has in turn resulted in FFB output contribution from Sabah and Indonesia increasing by 32.4% and 3.3% respectively. On ytd basis, FFB production declined by 8.2% to 595.8k mt, on the back of lingering effect of El Nino.

Risks

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

Forecasts

• Maintained

Rating

HOLD (↔)

• While we like TSH for its young age profile (which translates to strong FFB output growth prospects), further upside is capped by its pricey valuations and high net gearing (0.93x as at 31 Dec 2016).

Valuation

• Maintain HOLD recommendation and SOP-derived TP of RM1.72 .

Source: Hong Leong Investment Bank Research - 28 Feb 2017