Period     1Q13

Actual vs. Expectations   1Q13 core net profit* of RM19.0m made up 19% of the consensus FY13 full-year forecast (RM99m) and 18% of ours (RM104m). The result is considered to be within expectations as the past 1Q earnings made up 13% to 18% of the full year earnings in the last three years. Note that 1Q is usually the low FFB production season for oil palm trees.

We view the results positively. TSH’s ability to register earnings growth in the current low CPO price environment makes it a clear outperformer as compared to the other pure planters (which have generally registered earnings decline so far). We reckon its good results were due to its superior FFB growth brought about by its young tree age profile. On top of that, TSH also enjoyed a good natural hedge against the low CPO prices by virtue of it having a JV with Wilmar on its Sabah refineries.  

Dividends    As expected, no dividend was announced.

Key Results Highlights  YoY, the 1Q13 core net profit jumped 18% to RM19.0m due to an improved performance from its Sabah refineries JV with Wilmar (+26% to RM7.6m) and a superior FFB growth of 43% to 129,055mt. Both of these factors were enough to counter the average CPO price decline of 27% to RM2149/mt.

QoQ, the 1Q13 core net profit declined 45% to RM19m due to lower earnings from its Sabah refineries JV with Wilmar (-29% to RM7.6m) and a lower FFB volume (-8% to 129,055mt). However, a better average CPO price achieved of RM2149/mt (+2% QoQ) mitigated the fall slightly. We are not overly concerned on the QoQ earnings fall as this was caused mainly by the seasonal factor.

Outlook    We believe the worst should be over for TSH. Note that its 1Q13 result is the second successive quarter with positive YoY earnings growth after it registered four consecutive quarters of YoY earnings decline previously.

Change to Forecasts    Maintaining our FY13E-FY14E earnings of RM104m-RM160m.

Rating  Maintain OUTPERFORM

Valuation     Maintaining our TP of RM2.44 based on an unchanged Fwd. PER of 12.9x on CY14E EPS of 18.9 sen.

Risks    Worse than expected CPO prices.

Source: Kenanga