Results

• Reported 1Q17 core net profit of RM26.1m (qoq: -11.1%; yoy: +67.7%), accounting for 19.8-21.3% of consensus and our full-year forecasts. We consider the results within expectations, as we are anticipating strong FFB output in the coming quarters.

Deviations

• Broadly in line.

Dividend

• None.

Highlights

• YoY… 1Q17 core net profit declined by 11.1% to RM26.1m as higher palm product prices were more than offset by seasonally lower FFB output, higher finance costs (resulting from higher amount of finance costs being expensed as more areas moving into the mature bracket, we believe), coupled with lower contributions from associate and JV.
• QoQ… 1Q17 core net profit increased by 67.7% to RM26.1m, boosted mainly by higher FFB output and palm product prices, but partly offset by higher finance cost (due to the reason explained above).
• FFB output… Despite still facing the lingering effect of the El Nino, FFB output increased by 8.3% yoy to 148.8k mt in 1Q17. We believe the growth was achieved on the back of: (1) mild FFB yield recovery at existing mature areas; and (2) More areas moving into mature bracket. For the full year, we project FFB output growth of 18.1%, underpinned by FFB yield recovery (as the effect of El Nino in 2016 has waned) and the young age profile at its Indonesian estates.

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 (0.89x as at 31 Mar 2017).

Valuation

• Maintain HOLD recommendation and a slightly lower SOP- derived TP of RM1.71 (vs. RM1.73 previously) after taking into account of the privatization of Ekowood.

Source: Hong Leong Investment Bank Research - 25 May 2017