Period  3Q14/9M14

Actual vs. Expectations TSH Resources (TSH)’s 9M14 core net profit (CNP)* of RM110m is within market expectation, as it makes up 78% of the street’s FY14E estimate of RM140m. However, it is only at 65% of our estimate of RM169m, which is disappointing.

 The key variance is the lower-than-expected CPO prices in 3Q14 at only RM2,170/MT (against our estimate of RM2,500/MT). This could be caused by a significant decline in soybean oil (SBO) prices to average USD 32 cents/bushel (vs. our assumptions of USD 35 cents/bushel. Note that SBO prices have been affected by bumper soybean crops coming from the US.

Dividends  None as expected.

Key Results Highlights YoY, 9M14 CNP increased 26% to RM109.5m as CPO price improved 9% to RM2,390/MT while FFB volume was up by 27% to 483,048 MT. This is close to our assumption of 25% FFB growth in FY14E.

 QoQ, 3Q14 CNP declined 31% to RM30.8m as CPO prices slipped 12% to RM2,170/MT.

Outlook  Despite the good 9M14 earnings growth, we believe that current low CPO prices are likely to pull down the earnings growth to only 10% (from 18% previously) for whole of FY14.

 We are concerned about the recent CPO price trends due to global trend of strengthening US Dollar and low crude oil prices. Hence, we are looking to revise CPO price down soon, which will drag on FY15E earnings.

Change to Forecasts We have reduced our FY14E CNP by 7% to RM157m after reducing our CPO prices assumption to RM2,400/MT. Our FY15E earning is UNDER REVIEW at this juncture pending our new CPO prices estimate. Our last estimate for FY15E CPO prices is RM2,500/MT and we are likely to reduce it.

Rating Maintain MARKET PERFORM

Valuation  Due to TSH’s high FFB growth with 3-year CAGR FFB growth of 19%, we are likely to keep the recommendation on this stock as MARKET PERFORM. However, there is a downside bias to our TP due to the potential earnings trimming for FY15E We may also look to review our valuation metrics as well.

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

Source: Kenanga