Period  4Q14/FY14

Actual vs. Expectations  TSH Resources (TSH)’s FY14 core net profit (CNP)* of RM136m is within market expectation, at 99% of the street’s FY14E estimate of RM137m. However, it came in below ours, at only 87% of our estimate of RM157m.

 This was mainly due to lower-than-expected 4Q14 FFB volume at 157.3k MT (against 3Q14’s 163.6k MT) which we think resulted in lower milling efficiency and led to the lower Plantations margin at 14% (against 3Q14’s 20%).

Dividends  2.5 sen first and final dividend was announced (implied 1.1% dividend yield), slightly below our and consensus expectation of 2.9 sen.

Key Results Highlights  YoY, FY14 CNP declined 3% to RM136m mainly due to higher effective tax rate. Note that FY13 effective tax rate was lower mainly due to nontaxable capital gains on its Pontian sale. FY14 PBT improved 4% to RM171m due to better FFB volume (+18% to 640.4m MT) and CPO prices (+3% to RM2,334/MT).  

QoQ, 4Q14 CNP dropped 15% to RM26.2m mainly due to lower FFB volume during the quarter and poorer margins as highlighted above.

Outlook  We expect CPO prices to average RM2,200/MT in FY15 as we think CPO prices will weaken in 2H15 due to higher production, the weak Ringgit and low crude oil prices.  However, we believe FY15E FFB growth of 21% (well above the sector average of 6%) could partially offset weaker CPO prices.

Change to Forecasts  Slight downward FY15E CNP adjustment by 5% to RM180m (from RM190m) due to housekeeping reasons and a slightly more conservative FFB assumptions

Rating Maintain MARKET PERFORM  While we like TSH for its high FFB growth potential of 21%, its upside may be capped by lower FY15E CPO prices of RM2,200/MT (-8% YoY).

Valuation  We revise our TP slightly higher to RM2.30 (from RM2.18) based on applied Fwd. PER of 17.2x on slightly lower FY15E EPS of 13.4 sen (from 14.1 sen).  

Our Fwd. PER of 17.2x (updated from 15.4x previously) reflects 3-year mean valuation. However, we may consider upgrading to +0.5SD valuation basis once FFB volume recovery is seen in 1Q15, putting TSH on par with other planters with high FFB growth prospects such as IJMP.

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

Source: Kenanga