Beating  estimates.  Amid  weaker  CPO  prices,  TSH  clocked  in  4QFY12  revenue  of RM216.8m (-22.1% y-o-y, -16.8% q-o-q), with earnings growing to RM30.6m (+24.5% y-o-y,  +87.3%  q-o-q)  on  the  back  of  a  strong  uptick  in  FFB  production  and  improved  refiningmargins for its Sabah refinery, which is a 50:50 collaboration with Wilmar. Full year 2012 revenue  and  profits  of  RM983.7m  (-13.3%  y-o-y)  and  RM76.7m  (-34.1%  y-o-y)  were nonetheless weaker compared to the 2011 figures, dampened by lower CPO prices, higher fertilizer  costs  and  soft  output  earlier  in  the  year.  Its  full-year  earnings  exceeded  our  and consensus expectations by 15.5% and 17.4% respectively.

Production  swings  up.  4Q  FFB  production  rose  to  140,828  tonnes  (+40.3%  y-o-y, +36.8% q-o-q), bringing the year's output to 424,737 tonnes (+6.3% y-o-y), 7.5% ahead of our  394,960-tonne  forecast,  which  implied  a  1.2%  y-o-y  contraction.  Both  its  Sabah  and Indonesian  operations  experienced  strong  production  growth  of  38.8%  and  35.4%  q-o-q respectively,  compensating  for  the  weak  9MFY12  production  (-5.1%  y-o-y).  Its  young Indonesian  estates  saw  output  rise  by  17.4%  in  2012  while  its  fully  matured  Sabah  trees suffered a 13.7% production decline. TSH's Indonesian production now accounts for 71% of its total output, up from 65% in 2011.

Refining margins improve. 4QFY12 contributions from the company's refinery JV venture with  Wilmar  grew  to  RM10.8m  (+124%  y-o-y),  accounting  for  57.6%  of  its  FY12  JV earnings. We understand from industry players that the sharp and rapid plunge in palm oil prices  in  2H2012  prompted  many  refiners  to  shift  to  a  new  pricing  formula  for  their  CPO purchases.  Thus,  the  fixed  CPO  selling  prices  previously  agreed  upon  between  refiners and millers no longer held, with refiners still agreeing to take up the millers' CPO but only at spot prices and not at the previously determined rate.

Wood products, cocoa record losses. TSH's non-core businesses continued to register dismal earnings amid poor European demand for its timber flooring products, dragging the group's  operating  profit  down  by  RM3.3m  in  FY12.  The  wood  products  division  is undergoing rationalization for its European and local operation.

Maintain  BUY. We keep our FY13 earnings forecast unchanged at RM105.9m, based on our  2013  average  CPO  price  assumption  of  RM2,750  per  tonne.  We  also  introduce  our FY14 profit estimate of RM137.7m, based on a CPO price forecast of RM3,100 per tonne. Our expectations are for FFB production to jump 16.6% in FY13 before further expanding by  17.4%  in  FY14.  We  value  TSH  at  a  FV  of  RM2.37,  based  on  16.0x  on  its  plantation earnings and 0.9x BV on its wood products and cocoa segments.

 Source: OSK