TSH’s FY20 core net profit of RM89.3m (+5.4x) beat expectations, accounting for 113.2-119.8% of our and consensus estimates, due mainly to better-than expected JV earnings. Declared interim DPS of 1.5 sen (ex-date: 12 Mar 2021). We maintain our BUY rating on TSH, with an unchanged sum-parts derived TP of RM1.35. TSH remains as one of our preferred pick within the sector.

Above expectations. 4Q20 core net profit of RM39.4m (QoQ: +2.7x; YoY: +16.3x) took FY20’s sum to RM89.3m (+5.4x from RM16.4m in FY19). The results beat expectations, accounting for 113.2-119.8% of our and consensus estimates, due mainly to better than-expected JV earnings.

Exceptional items (EIs) in FY20. Core net profit of RM89.3m was arrived after adjusting for (i) RM5.6m unrealised forex gain, (ii) RM0.6m fair value gain, (iii) RM0.9m impairment, (iv) RM1.1m write-offs, (v) RM19.0m loss on commodity contracts, and (vi) RM6.8m fair value loss on FFB.

Dividend. Declared interim DPS of 1.5 sen (ex-date: 12 Mar 2021), payable on 1 Apr 2021.

QoQ. 4QFY20 core net profit surged 2.7x to RM39.4m (from RM14.4m in 3Q20), boosted mainly by (i) higher FFB output (+13.7%) and realised palm product prices at upstream plantation segment, and (ii) improved JV contribution.

YoY. 4QFY20 core net profit jumped 16.3x to RM39.4m (from RM2.4m SPLY), boosted by (i) higher FFB output (+6.0%) and realised palm product prices at upstream plantation segment), (ii) lower finance costs, and (iii) significantly better JV contribution.

YTD. FY20 core net profit surged 5.4x to RM89.3m (from RM16.4m in FY19), as weaker contribution from cocoa segment was more than mitigated by (i) higher FFB output (+1.4%) and realised palm product prices at upstream plantation segment, (ii) improved JV contribution, and (iii) significantly higher contribution from associate and JVs.

FFB output. TSH clocked in FFB output growth of 1.4% in FY20, as replanting activities in Malaysia operation (-0.7%) and lagged impact from drought were more than mitigated by an increase in harvesting area in Indonesia (which has in turn resulted in FFB output in Indonesia operations increasing by 2.3%). Excluding land sale (which has yet to be concluded and still undergoing due diligence process), we expect FFB output growth trajectory to improve from FY21 onwards (7-11% based on management’s guidance, with an estimated ~2,000 of land bank to be graduated into mature bracket in FY21), underpinned by young age profile at its Indonesia operations.

Forecast. Maintained. Every RM100/mt change in our CPO price assumption will result in TSH’s PBT changing by RM10m p.a..

Maintain BUY; TP: RM1.35. We maintain our BUY rating on TSH, with an unchanged sum-parts derived TP of RM1.35 (see Figure #2). TSH remains as one of our preferred pick within the sector, supported by (i) its high earnings sensitivity to CPO price swing and this will more than mitigate muted near-term earnings prospect at the cocoa processing and marketing segment, (ii) young age profile (with ~52% of its planted area ageing below 8 years, after taking into account of its land sale), and (iii) improving balance sheet (net gearing has declined to 0.72x from 0.77x as at 31 Dec 2019).

Source: Hong Leong Investment Bank Research - 26 Feb 2021