TSH's FY12 earnings of RM76.7m (-34.1% y-o-y) were above expectations as strong 4QFY12 FFB production (+40.3% y-o-y) and substantially improved refining margins helped cushion the weak 9M performance. FY12 FFB output grew by 6.3% y-o-y, led by growth from its young Indonesian estates. We forecast production to expand by 16.6% and 17.4% in FY13 and FY14 respectively. Maintain BUY, with RM2.37 FV.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.
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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.