Journey to Wealth
TSH Resources - Positioning for stronger 2H12 earnings
Period 2Q12 and 1H12
Actual vs. Expectations
1H12 core net profit of RM36m is considered broadly within expectations, although it makes up 28% of the consensus' FY12E forecast of RM129m and 33% of our forecast of RM112m.
Historically, TSH's FFB production is skewed towards 2H12 with 2H volume usually making up 55% of the full year production. We expect the 2H12 results to make up the remaining 67% of our forecast as the FFB production improves significantly. Recall that in FY10, 1H10 net profit of RM23m also made up only 27% of FY10 full year net profit of RM84m.
Dividends None as expected.
Key Results Highlights
YoY, 1H12 core net profit declined 32%. EBIT margin declined to 10% (1H11: 15%) due to lower average CPO price** at RM3218/mt (-8% YoY) and reduced FFB production of 180,982 mt (-4% YoY).
QoQ, 2Q12 EBIT only increased 6% against revenue rising 23%, likely attributable to higher fertilizer application during the quarter. Reported net profit was lower (-3%) as TSH incurred higher unrealized forex loss of RM6m (1Q12: RM1m).
TSH's FFB production declined 4% YoY but still outperform other planters which suffered deeper FFB production slump of 9%-18% for the same period. This could be due to the group's younger palm oil tree, which can withstand the tree stress effect better.
Outlook The long term outlook remains positive as we believe TSH can sustain a 5-year FFB CAGR growth of 16% as its Kalimantan estates mature.
Change to Forecasts
Maintaining our FY12-13E earnings of RM112mRM149m based on CPO price assumption of RM3150-RM3100 and FFB production of 448k-583k.
Rating Maintain OUTPERFORM
We like TSH for its young age profile of ~6.2 years old and its double digit FFB growth.
Valuation Maintaining TP of RM2.85 based on FY13E PER of 15.8x (+1SD@5-year mean, implying premium to peers given above reasons).
Risks A sustained drop in CPO prices.
Source: Kenanga
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