Period  2Q14/1H14

Actual vs. Expectations TSH Resources’ (TSH) 1H14 core net profit (CNP)* of RM79m is within expectation as it makes up 54% of the street’s FY14E consensus of RM147.0m and 47% of our estimate of RM168.6m.

Dividends  None as expected.

Key Results Highlights YoY, 1H14 CNP increased 72% to RM78.7m as CPO price improved 15% to RM2502/MT while FFB volume was up by 27% to 319,417 MT.

 QoQ, 2Q14 CNP rose 33% to RM44.9m due to seasonally stronger FFB volume (+4% to 162,675 MT) and lower finance cost which declined 40% QoQ to RM3.6m. Our CNP forecast is showing a different trend against the reported Net Profit which declined QoQ. This is due to a forex loss of RM8.6m incurred in 2Q and forex gain of RM17.8m in 1Q which was excluded from our CNP calculations.

Outlook  Despite the strong CNP growth of 72% in 1H14, we expect 2H14 earnings growth to be lower due to the current low CPO prices. Hence, we expect overall FY14E earnings growth to moderate to 18% to RM169m CNP.

Change to Forecasts Maintain FY14E-FY15E CNP of RM169m-RM198m.

Rating Maintain MARKET PERFORM

Short-term upside is limited as we expect the possibility of Indonesia limiting foreign ownership of plantation will be a concern among investors as 88% of TSH’s planted landbank is in Indonesia. However, downside is also limited due to a 1-for-2 bonus issue which is expected to be completed by 4Q14.

Valuation  Maintain our TP of RM3.40 based on unchanged Fwd. PE of 15.4x on FY15E EPS of 22.1 sen. Our Fwd. PE of 15.4x is based on mean valuation.

Risks to Our Call Lower-than-expected CPO prices and FFB growth.

Source: Kenanga