FY21 core net profit of RM227.6m (2.5x) beat expectations, accounting for 129.6- 142.9% of our and consensus estimates, due mainly to higher-than-expected palm product prices and JV performance (mainly from its 50%-owned refinery JV, we believe). Declared DPS of 3.0 sen (going ex on 30 Mar 2022). We raise our FY22-23 core net profit forecasts by 51.3% and 32.6%, mainly to account for higher CPO price assumptions (in line with our recent increase in CPO price forecasts for the sector). We take this opportunity to introduce our FY24 core net profit forecast. Post earnings revision, we upgrade our rating on TSH to BUY (from Hold earlier), with higher sum-of-parts TP of RM1.58 (from RM1.15 earlier).

Beat expectations. 4Q21 core net profit of RM72.2m (QoQ: -6.1%; YoY: +83.3%) took FY21 sum to RM227.6m (2.5x). The results beat expectations, accounting for 129.6 - 142.9% of our and consensus estimates, due mainly to higher-than-expected palm product prices and JV performance (mainly from its 50%-owned refinery JV, we believe).

Exceptional items (EIs) in FY21. Core net profit of RM227.6m in FY21 was arrived after adjusting for (i) RM10.1m unrealised forex loss, (ii) RM5.3m fair value gain on derivatives, (iii) RM11.7m net write-downs and/or write-offs, (iv) RM1.9m fair value gain on biological assets, and (v) RM44.0m loss on commodity futures contracts.

Dividend. Declared DPS of 3.0 sen (going ex on 30 Mar 2022), translating to dividend payout ratio of 57.3% and dividend yield of 2.1%.

QoQ. 4Q21 core net profit fell by 6.1% to RM72.2m, as higher realised palm product prices and improved JV and associate earnings were more than weighed down by a 17.9% decline in FFB output and widened losses at its cocoa segment.

YoY. 4Q21 core net profit surged by 83.3% to RM72.2m, boosted mainly by significantly higher realised palm product prices, improved associate and JV earnings, but partly moderated by a 23.0% decline in FFB output and losses at cocoa segment (as resurgence of Covid-19 cases has affected cocoa butter consumption, hence resulted in lower cocoa butter ratio). Realised CPO and PK prices rose 58.6-94.9% to RM4,347/mt and RM3,095/mt, while FFB output declined by 23.0% to 196k tonnes (due mainly to a shift in cropping pattern in Indonesia operations).

YTD. FY21 core net profit more than doubled to RM227.6m (from RM89.3m SPLY) boosted mainly by significantly higher realised palm product prices, and improved associate and JV earnings. In FY21, FFB grew marginally (by 1.4%) to 919k tonnes, while realised CPO and PK prices rose 44.1-71.5% to RM3,570/mt and RM2,363/mt, respectively.

Forecast. We raise our FY22-23 core net profit forecasts by 51.3% and 32.6%, mainly to account for higher CPO price assumptions (in line with our recent increase in CPO price forecasts for the sector). We take this opportunity to introduce our FY24 core net profit forecast.

Upgrade to BUY, with higher TP of RM1.58. Post earnings revisions, we upgrade our rating on TSH to BUY (from Hold earlier), with higher sum-of-parts TP of RM1.58 (see Figure #2) from RM1.15 earlier.

Source: Hong Leong Investment Bank Research - 25 Feb 2022