2Q19 CNP* came in within expectations at RM8.9m (-52% YoY; -36% QoQ), bringing 1H19 CNP to RM22.8m (-10% YoY), forming 47%/50% of consensus/our full-year estimates. 1H19 FFB output of 406k MT is also broadly within our full-year projection of 964k MT at 42% considering the seasonally stronger 2H. No dividend was declared, as expected. No changes in FY19-20E CNP of RM45.7-66.3m. Maintain MP with TP of RM0.900.

Within expectations. TSH’s 2Q19 Core Net Profit (CNP*) came in within expectations at RM8.9m (-52% YoY; -36% QoQ). This brought 1H19 CNP to RM22.8m (-10% YoY), accounting for 47% of consensus full-year estimate and 50% of ours. 1H19 FFB output of 406k MT is also broadly within our full-year projection of 964k MT at 42% considering the seasonally stronger 2H with 1H production making up 42-46% of full-year output in the past 3 years. No dividend was declared during the quarter, as expected.

YoY, despite 3% FFB growth, 1H19 CNP fell 10% to RM22.8m as the average CPO price declined 17% to RM1,906/MT. This was cushioned by a 76% surge in “Others” segment EBIT due to higher cocoa and bio integration profits. QoQ, 2Q19 CNP tumbled 36% as the average CPO price edged 1% lower to RM1,901/MT and FFB output dipped 2% on seasonality (shorter working month in June due to Eid al-Fitr). This was exacerbated by a significantly higher effective tax rate of 45.4% vs. 17.2% last quarter due to the presence of non-deductible expenses.

Neutral near-term outlook. Despite the recent recovery in CPO prices, we believe further upside is capped by burgeoning stockpiles in 4QCY19 and India’s probe into Malaysian exports of refined palm oil (which, in a grey sky scenario, could lead to protectionism and lower palm oil imports from India). Its sturdy FFB growth prospects (FY19E: +12%) are also countervailed by potentially higher overhead/maintenance costs as additional planted areas (c.4k ha) come into maturity.

No changes to FY19-20E CNP of RM45.7-66.3m as earnings came within our expectation.

Maintain MARKET PERFORM with an unchanged Target Price of RM0.900 based on CY20E PBV of 0.76x, reflecting -2.0SD valuation basis. The target price implies 18.8x CY20E PER, at 25% discount to large-cap planters’ average of 25.0x, which we believe is fair for a mid cap planter. TSH’s near-term outlook appears neutral as its FFB growth prospects of 12% for FY19 is negated by unexciting CPO price outlook and potentially higher overhead/maintenance costs going forward.

Risks to our call include sharp rises/falls in CPO prices and labour/fertiliser/transportation costs.

Source: Kenanga Research - 23 Aug 2019