1Q21 core net profit of RM30.7m (QoQ: -22%, YoY: +28.8%) accounted for 23.1% of our full-year estimates. We consider the results within our expectation, as we anticipate TSH’s performance to come in stronger in 2Q21, on the back of higher FFB output and palm product prices. Maintain earnings forecasts. Based on our estimates, every RM100/mt change in our CPO price assumption will result in TSH’s PBT changing by RM10m p.a.. We raise our sum-of-parts TP on TSH to RM1.20 (from RM1.18 earlier) as we updated our valuation parameters. However, we downgrade our rating on TSH to HOLD (from Buy earlier) following recent share price outperformance (which has advanced by 13.2% since last month).

Within our expectation. 1Q21 core net profit of RM30.7m (QoQ: -22%, YoY: +28.8%) accounted for 23.1% of our full-year estimates. We consider the results within our expectation, as we anticipate TSH’s performance to come in stronger in 2Q21, on the back of higher FFB output and palm product prices. Against the market, the results accounted for 34.1% consensus full-year estimate.

Exceptional items in 1Q21. Core net profit of RM30.7m in 1Q21 was arrived after adjusted for (i) RM11.6m unrealised forex loss, (ii) RM7.0m fair value gains on derivatives, (iii) RM4.m write back on impairment, (iv) RM1.6m write-off, and (v) RM8.0m loss on commodity futures contracts.

QoQ. 1Q21 core net profit fell 22% to RM30.7m, as higher realised palm product prices were more than offset by lower earnings contribution from JV (TSH-Wilmar, which TSH has a 50% stake) and higher tax expense.

YoY. 1Q21 core net profit rose 28.8% to RM30.7m, boosted by higher realised palm product prices, higher associate earnings (from Innoprise, which TSH has a 21.9% stake), but partly negated by lower earnings contribution from cocoa business.

FFB output in 4M20. TSH registered an FFB output growth of 11% in 4M20, boosted mainly by an output growth of 14% in Indonesia operations (which in turn was driven by an increase in harvesting area in Indonesia). Excluding land sale (which has yet to be completed), we expect FFB output growth trajectory to improve from FY21 onwards (7- 11% based on management’s guidance).

Forecast. Maintain. Based on our estimates, every RM100/mt change in our CPO price assumption will result in TSH’s PBT changing by RM10m p.a..

Sum-of-parts TP raised to RM1.20 but downgrade to HOLD. We raise our sum-of parts TP on TSH to RM1.20 (from RM1.18 earlier) as we updated our valuation parameters. However, we downgrade our rating on TSH to HOLD (from Buy earlier) following recent share price outperformance (which has advanced by 13.2% since last month).

Source: Hong Leong Investment Bank Research - 26 May 2021