TSH’s 9M20 core net profit of RM52.0m (+269.4%) beat our expectation, accounting for 84.5% of our full-year estimate, with key variation being betterthan-expected realised average CPO price (RM2,404/mt vs. RM2,350/mt we projected). We raise our FY20 core net profit forecast by 15.3% to RM71.0m, mainly to account for higher palm product prices realised YTD. We maintain our FY21-22 core net profit forecasts for now, pending a review in our average CPO price assumptions post results season. Based on our estimates, every RM100/mt change in our average CPO price assumptions will result in 9-10% change in our core net profit forecasts. We maintain our BUY rating with a slightly higher SOPderived TP of RM1.15 (from RM1.14 earlier), as we incorporated the latest share price in Innoprise Plantations. There is an upside bias to our TP, pending a post results season review on our average CPO price assumption.

Beat our expectation. 3Q20 core net profit of RM14.8m (QoQ: +8.6%; YoY: 186%) took 9M20 core net profit to RM52.0m (+269.4%). The results beat our expectation, accounting for 84.5% of our full-year estimate, with key variation being better-thanexpected realised average CPO price (RM2,404/mt vs. RM2,350/mt we projected). Against consensus, the results missed, accounted for 64.1% of consensus full-year estimate.

Exceptional items in 3Q20. During the quarter, we adjusted for RM9.3m worth of Eis, which include (i) RM872k fair value loss on derivatives, (ii) RM7.6m fair value gain on biological assets, (iii) RM634k inventories written off, (iv) RM9m loss on commodity futures contracts, (v) RMRM9.1m unrealised forex gain, and (vi) RM3.5m writeback of impairment on receivables.

QoQ. 3Q20 core net profit rose 8.6% to RM14.8m, due to higher FFB output and palm product prices at plantation segment and lower finance cost, which more than mitigated weaker contribution from cocoa business, we believe.

YoY. 3Q20 core net profit almost tripled to RM14.8m (from RM5.2m SPLY), as lower FFB output (-9.4%, due mainly to lower FFB output from Indonesia operations) and lower contribution from lower cocoa sales and lower bio-integration division (as sale of electricity was affected by lower supplies of raw materials).

YTD. 9M20 core net profit surged 2.7x to RM52m, boosted mainly by higher palm product prices and lower finance cost (arising from lower debt), which more than mitigated lower contribution from lower cocoa sales and lower electricity sale.

Forecast. We raise our FY20 core net profit forecast by 15.3% to RM71.0m, mainly to account for higher palm product prices realised YTD. We maintain our FY21-22 core net profit forecasts for now, pending a review in our average CPO price assumptions post results season. Based on our estimates, every RM100/mt change in our average CPO price assumptions will result in 9-10% change in our core net profit forecasts.

Maintain BUY, with higher SOP-derived TP of RM1.15. We raise our SOP based TP slightly from RM1.14 to RM1.15 as we incorporated the latest share price in Innoprise Plantations (a 21.9%-owned associate) in our valuation parameter. We note that TSH is one of the major beneficiaries to the recent CPO price upswing. There is an upside bias to our TP, pending a post results season review on our average CPO price assumption.

Source: Hong Leong Investment Bank Research - 19 Nov 2020