Period  4Q13/FY13

Actual vs. Expectations TSH Resources (TSH)’s FY13 core net profit (CNP)* of RM143m trumped consensus estimate as it came in 36% and 24% above the street’s consensus estimate of RM105m and ours at RM115m, respectively.

 We may have underestimated TSH’s effort to enhance its efficiency in managing cost during the tough time of low CPO prices. Note that FY13 cost of sales actually declined 4% YoY to RM705m despite revenue growing 3% YoY to RM1.02b.

Dividends  As expected, a final dividend of 3.5 sen was announced (subject to approval in the Annual General Meeting).

Key Results Highlights  YoY, FY13 core net profit surged 53% to RM143m. Despite having to accept lower CPO prices of RM2251/mt (-15% YoY), TSH managed to outperform its peers with superior earnings growth as its FFB volume jumped 28% to 542,951 mt.

 QoQ, 4Q13 core net profit jumped 37% to RM56m due to better CPO prices (+7% to RM2392/mt) and seasonally higher FFB volume in 4Q13 (+24% to 159,721 mt).

Outlook  Management expects “improved profit in the coming quarter” and we believe FY14 will be a much better year than 2013. We reiterate our view that TSH will benefit most from higher CPO prices due to its highest FFB growth potential among all planters under our coverage. Due to its young age profile, we expect TSH to deliver FFB growth of 18% in FY14E and this is much higher than peers’ average FFB growth of 10%.

Change to Forecasts FY14E earning is increased by 2% to RM204m while FY15E earning is raised by 3% to RM214m as we assumed lower general cost.

Rating Maintain OUTPERFORM   TSH is still undervalued as it is only trading at 13.2x Fwd. PE despite spectacular earnings growth potential of 43% in FY14E.

Valuation  We raised our TP to RM4.10 (previously: RM3.38) after applying higher Fwd. PE of 18x (from 15x) on higher FY14E EPS of 22.7 sen (previously 22.6 sen). Our new valuation of 18x has been upgraded to +1.0SD (from +0.5SD). The premium valuation reflects its good cost management and best FFB output growth potential.

Risks to our call  Lower-than-expected CPO prices and FFB growth.

Source: Kenanga