TSH is expected to release its FY13 result in the last week of Feb and we expect a record-high net income of RM138m. Key factors behind the anticipated superior earnings growth are: (i) expected high FFB growth of 29% to 547,000 mt and (ii) a one-off RM86m gain from the sale of a 16% stake in Pontian in early Sep-2013. At core earnings level, we also expect TSH to deliver respectable core earnings growth of 29% YoY to RM115m in FY13, which should beat consensus estimate of RM105m. Lastly, we also expect higher FY13 dividend of 3.5 sen (+40% YoY). TSH is our mid cap top pick in the plantation sector and we maintain our OUTPERFORM call with a TP of RM3.38 based on Fwd. PE of 15.0x on FY14E core earnings. TSH should benefit the most from firmer CPO prices as it has the strongest FFB growth (3-year Fwd. CAGR of 20%) among all planters under our coverage.
Expect FY13 net income to record a historical high of RM138m. TSH is expected to release its FY13 result in the final week of this month and we expect a record-high net income of RM138m. Key factors behind our bullish view are: (i) expected high FFB growth of 29% to 547,000 mt and (ii) a one-off RM86m gain on the sale of 16% stake in Pontian in early Sep-2013. However, the net income growth is capped, to a certain extent, due to unrealized forex loss.
Core earnings likely to exceed consensus estimate too. Excluding the one-off gain from the Pontian stake sale and unrealized forex loss, TSH is still expected to show a respectable core earnings growth of 29% YoY to RM115m in FY13. This should beat consensus estimate of RM105m which we think is too conservative. Peer comparison wise, we expect TSH’s core earnings growth of 29% YoY to outperform all other planters under our coverage thanks to its structural advantage of having young trees (average 7 years old) which also augur well for its medium-term outlook.
Dividend likely to be higher in FY13 at 3.5 sen or 40% higher YoY against FY12 dividend of 2.5 sen. We have assumed a 26% payout ratio and this is in line with the company's long-term dividend payout policy of 20% to 30% on net profit. While this only translates into 1.2% dividend yield, we think this is justified for a company in high growth earnings stage.
Undemanding valuation. Despite having the highest FFB growth, TSH is currently trading at 13.3x Forward PE which is still below the mid cap Forward PE average of 13.5x. Against its historical Forward PER band, this is in line with its 5-year average Forward PE of 13.1x. This is not justified, in our view, given the strong growth prospect as we believe TSH should trade at +1 Standard Deviation above its Forward PE in which we arrive at 15.0x.
Maintain FY13E and FY14E core earnings of RM115m and RM200m, respectively. Our key assumptions are: (i) FY13E average CPO prices of RM2400 per mt and (ii) FY14E average CPO prices of RM2800/mt. We have also assumed FY13E FFB volume to grow by 29% YoY to 547,000 mt followed by another 18% grow in FY14E to 643,000 mt due to maturing estates from Kalimantan.
Our top pick for 2014; maintain OUTPERFORM with TP of RM3.38. TSH is our top pick in the plantation sector for 2014 as we expect the Company to benefit the most from the CPO prices increase as it has the strongest FFB growth among all planters under our coverage. We expect TSH’s FFB production to grow at 20% CAGR for the next 3 years.
Source: Kenanga
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