Results

• 3Q17 core net profit of RM29.6m (qoq: +21.1%; yoy: +56.2%) took 9M17 core net profit to RM80.1m (+38.7%). The results came in below expectations, accounting for only 58.1-65.8% of our and consensus full-year forecasts.

Deviations

• Higher-than-expected CPO production cost.

Dividend

• None.

Highlights

• QoQ… 3Q17 core net profit rose 21.1% to RM29.6m mainly on the back of a 20.6% increase in FFB production (to 212.3k tonnes), and higher associate and JV contributions.

• YoY… 3Q17 core net profit rose 56.2% to RM29.6m, boosted mainly by a 40.3% increase in FFB production and a 5% increase in average CPO price (which have in turn resulted in plantation operating profit increasing by 84.2%), but partly offset by higher finance cost (on the back of more areas moving into mature bracket, resulting in higher amount of finance cost being expensed in 9M17).

• YTD… 9M17 core net profit increased by 38.7% to RM80.1m, and this was boosted mainly by higher FFB production and average CPO price, but partly offset by higher finance cost (due to reason mentioned above).

• FFB output increased by 32.7% to 537.2k tonnes in 9M17, driven by yield recovery in Sabah estate, and more areas moving into mature bracket in Indonesia. For the full year, we maintain our FFB output growth of 18.1%, underpinned by FFB yield recovery 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

• FY17-19 core net profit forecasts are lowered by 13.6%, 4.5% and 4.8% respectively, largely to account for higher production cost assumption.

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 (0.85x as at 30 Sep 2017).

Valuation

• Post net profit forecast revision, SOP-derived TP is lowered by 4.4% to RM1.53 (see Figure 5).

Source: Hong Leong Investment Bank Research - 23 Nov 2017