Results

• 4Q17 core net profit of RM25.3m (qoq: -14.4%; yoy: - 13.7%) took FY17 core net profit to RM105.5m (+21%). The results came in below expectations, accounting for only 88.6-90.2% our and consensus forecasts.

Deviations

• Higher-than-expected finance cost and effective tax rate.

Dividend

• None.

Highlights

• QoQ… 4Q17 core net profit declined by 14.4% to RM25.3m mainly on the back of lower FFB production, impairment loss on inventories, plant and machineries at others division, higher finance cost and tax expense.
• YoY… 4Q17 core net profit declined by 13.7% to RM25.3m mainly on the back of lower FFB production and CPO selling price at palm product division, lower sale of electricity and steam at bio-integration division, impairment loss on inventories, plant and machineries, and higher finance costs.
• YTD… FY17 core net profit rose 21% to RM105.5m, mainly on the back of a 19.2% increase in FFB production and 10% increase in CPO selling price, but partly offset by higher finance costs.
• FFB output increased by 19.2% to 710k tonnes in FY17, 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

• We lower our FY18-19 core net profit forecasts by 7.2% and 6.9% respectively, largely to account for higher finance cost assumptions.

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 (0.98x as at 31 Dec 2017).

Valuation

• Post net profit forecast revision, SOP-derived TP is lowered by 9.6% to RM1.42 .

Source: Hong Leong Investment Bank Research - 28 Feb 2018