Journey to Wealth

TSH Resources A slow FFB yield recovery

kiasutrader
Publish date: Wed, 21 Nov 2012, 09:40 AM
kiasutrader
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Period    3Q12 and 9M12.

Actual vs. Expectations     The 9M12 core net profit* of RM56m was below expectations. It made up 58% of both the consensus forecast of RM96m and our forecast of RM97m. The FFB yield was lower than expected for both its Sabah and Kalimantan estates as the recovery from the tree stress effect had been slower than expected.

Dividends     No dividend was announced as expected.

Key Results Highlights     YoY, the 9M12 core net profit declined 41% YoY to RM56m. The 9M12 revenue meanwhile declined 10% to RM767m as the average CPO price** was lower by 8% YoY to RM3095/mt while FFB volume also declined 5% YoY to 283,909 mt. In addition, the group had applied a higher fertiliser dosage to replenish nutrients for its stressed oil palm trees. Coupled with a higher labour cost, we believe the operating cost may have increased by a minimum 10%.

QoQ, the 3Q12 core net profit was down by 5% to RM19m as the CPO price decline of 11% QoQ to RM2851/mt more than offset the higher FFB volume of 102,927mt (+12% QoQ).

Outlook    The long-term outlook remains positive due to its young trees age profile of only 6.2 years old. Hence, the FFB growth should be sustained at a double-digit rate for the next three years.

Change to Forecasts    We have reduced our FY12-13E earnings by 22%-8% to RM75m-RM132m after assuming lower FFB yields of 20.3mt/ha-22.2mt/ha. Note that FY12E FFB yield has been adjusted down by 10% due to the slower than expected tree stress recovery. The FY13E FFB yield reduction adjustment was less severe at 4% as we think that the higher fertiliser application in FY12E should translate into a better FFB production in FY13E.


Rating    Maintain OUTPERFORM
Despite the lower adjusted Target Price (TP), the current share price still offers a total return of 11%. Hence, we are retaining an overall OUTPERFORM rating on the stock.

Valuation    We have trimmed the TP to RM2.48 based on an unchanged FY13E PER of 15.8x (+1SD above the 5-year mean, implying a premium to its peers given the reasons mentioned above earlier) on the lower new FY13E core EPS of 15.7 sen.

Risks    A sustained drop in CPO prices.

Source: Kenanga
TSH (9059)
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