1H22 core net profit of RM134.9m (2.3x) accounted for 68.2-69.0% of consensus and our full-year estimates. We consider the results within expectations, in anticipation of a weaker 2H on the back of lower palm product prices. Maintain earnings forecasts, TP of RM1.07 (based on unchanged 15x FY24 core EPS of 7.1 sen), and HOLD rating on TSH.

In line. 2Q22 core net profit of RM89.2m (+95.4% QoQ; 2.4x YoY) took 1H22 total sum to RM134.9m (2.3x YoY), accounting for 68.2-69.0% of consensus and our full-year estimates. We consider the results within expectations, as we anticipate a weaker 2H due to lower palm product prices.

Exceptional items (EIs) in 1H22. Core net profit of RM134.9m in 1H22 was arrived after adjusting for (i) RM21.5m unrealised forex loss, (ii) RM15.3m fair value gain on erivatives, (iii) RM35.6m impairment, (iv) RM25.0m write-downs, (v) RM0.4m fair value gain on biological assets, and (vi) RM85.3m disposal gain.

QoQ. Core net profit surged by 95.4% to RM89.2m in 2Q22, boosted mainly by a 20.9% increase in FFB output, a 6.2% increase in realised average CPO price (RM5,076/mt vs. RM4,779/mt in 1Q22), and improved contribution from refinery unit (50%-owned JV unit, TSH-Wilmar).

YoY. Core net profit surged to RM89.2m (2.4x of RM36.8m registered SPLY), boosted mainly by significantly higher realised average CPO price (RM5,076/mt vs. RM3,441/mt SPLY), improved contributions from associate (21.9%-owned Innoprise) and JV (50% - owned TSH-Wilmar), and lower finance costs, but partly moderated by a 6.2% decline in FFB output.

YTD. Core net profit surged to RM134.9m in 1H21 (2.3x of RM59.6m registered in 1H21), due to same reasons mentioned above. During 1H22, realised average CPO price increased by 52.4% to RM4,941/mt, while FFB output declined by 9.5% to 437.3k tonnes.

Outlook. We anticipate weaker performance in 2H22, on the back of the sharp decline in palm product prices since May-22 (following Indonesia’s decision to remove the ban on palm oil exports and market concern over rising palm oil stockpiles). Near-term outlook aside, management opines that CPO price will remain supported at current levels, on the back of supply concerns arising from prolonged Russia-Ukraine conflict and weaker soybean production outlook (arising from the return of La Nina in late-2022 and early-2023).

Forecast. Maintained.

Maintain HOLD, with unchanged TP of RM1.07. We maintain our HOLD rating on TSH, with an unchanged TP of RM1.07 (based on unchanged 15x FY24 core EPS of 7.1 sen).

Source: Hong Leong Investment Bank Research - 23 Aug 2022