9M21 core net profit of RM155.4m (+211.3%) beat expectations, accounting for 104-109.2% of our and consensus full-year estimates, due mainly to higher-than expected realised palm products prices and lower-than-expected tax expense. We raise our FY21-23 core net profit forecasts by 35.6%, 35.0% and 10.6% respectively, largely to reflect higher CPO price but partially offset by higher fertiliser cost assumptions. Following the upward revision in our core net profit forecasts and roll-forward of valuation base year (from FY22 to FY23), we maintain our BUY rating on TSH with a higher sum-of-parts TP of RM1.35. TSH remains as our top pick within the sector’s small-mid cap space, supported by its undemanding valuation, favourable output growth prospects, and improving balance sheet.

Beat expectations. 3Q21 core net profit of RM76.9m (QoQ: +61.2%; YoY: +434.8%) took 9M21 sum to RM155.4m (+211.3%). The results beat expectations, accounting for 104-109.2% of our and consensus full-year estimates, due mainly to higher-than-expected realised palm products prices and lower-than-expected tax expense.

Exceptional items (EIs) in 9M21. Core net profit of RM155.4m was arrived after adjusting for (i) RM13.7m unrealised forex loss, (ii) RM4.1m fair value loss on derivatives, (iii) RM4.4m impairment write-back, (iv) RM10.6m write-offs, (v) RM0.7m fair value loss on biological assets, and (vi) RM24.9m loss on commodity futures contracts.

QoQ. Core net profit rose 61.2% to RM76.9m in 3Q21, helped by higher realised average CPO price, and improved contribution from associate and JV units.

YoY. Core net profit soared by 434.8% to RM76.9m in 3Q21 (from just RM14.4m SPLY), boosted mainly by higher FFB output (+6.6%), significantly higher realised average CPO price, and improved contribution from associate and JV units.

YTD. 9M21 core net profit more than tripled to RM155.4m (from RM46.1m in 9M20), thanks to significantly improved contribution from upstream plantation segment (which in turn was driven by an 11% increase in FFB output and significantly higher realised average CPO price).

FFB output. FFB output rose 11% to 722.6k tonnes in 9M21, boosted mainly by strong output contribution in Indonesia operations. In our forecasts, we are projecting FFB output to grow by 8.4%, 2.2% and 5.9%, respectively, in FY21-23.

Forecast. We raise our FY21-23 core net profit forecasts by 35.6%, 35.0% and 10.6% respectively, largely to reflect higher CPO price but partially offset by higher fertiliser cost assumptions. We note that our FY21-23 CPO price assumptions are now RM4,250/mt, RM3,500/mt and RM2,900/mt (vs. RM3,800/mt for FY21 and RM2,900/mt for FY22-23 previously).

Maintain BUY, with higher TP of RM1.35. Following the upward revision in our core net profit forecasts and roll-forward of valuation base year (from FY22 to FY23), we maintain our BUY rating on TSH with a higher sum-of-parts TP of RM1.35 (from RM1.31 previously). TSH remains as our top pick within the sector’s small-mid cap space, supported by its undemanding valuation, favourable output growth prospects (due to its favourable age profile, with ~40% of its planted areas are aged below 9 years), and improving balance sheet.

Source: Hong Leong Investment Bank Research - 24 Nov 2021