TSH’s 9MFY19 CNP* of RM34.2m came within our estimate at 70% but above consensus at 87%, likely due to higher FFB output. 9MFY19 FFB output of 651k MT also came within our estimate at 75%. No changes to FY19-20E CNP of RM49.2-67.4m (25-24% higher than consensus). Maintain MARKET PERFORM with a higher TP of RM1.20. Despite above-average FFB growth prospects and potential upwards revision in consensus’ earnings estimates, we maintain our call after share price rally (+29%) since end-October.

Within our but above consensus’ expectations. 3QFY19 Core Net Profit (CNP*) came in at RM11.5m (-28% YoY; +29% QoQ), bringing 9MFY19 CNP to RM34.2m (-17% YoY), within our estimate at 70%, but above consensus’ at 87%, which we believe is largely due to higher FFB output. Having said that, 9MFY19 FFB output of 651k MT is within our estimate at 75%. No dividend was declared, as expected.

Low CPO price is the culprit. YoY, 9MFY19 CNP fell (-17%) in line with a 13% decline in topline as the average CPO price declined (-14%) to RM1,906/MT, while FFB output remained flat. QoQ, despite flat CPO price, 3QFY19 CNP surged (+29%) to RM11.5m on the back of 23% increase in FFB output. This resulted in an EBIT margin expansion (+6ppt) for its palm products, which was partially equalized by higher effective tax rate of 48% (+3ppt) for the quarter.

Sequential earnings improvement in 4QFY19. We expect to see sequential earnings improvement in 4QFY19, grounded on higher CPO prices. Based on MPOB data, QTD 4QFY19 CPO prices have already recorded a solid increase of 13%. Meanwhile, FFB output is on track with the recently released 10MFY19 FFB output registering 738k MT, at 84% of our full-year estimate of 874k MT. Note that our FY19E CNP of RM49.2m is 25% higher than consensus, reflecting our expectation of a bumper 4QFY19 ahead.

No changes to FY19-20E CNP of RM49.2-67.4m as earnings came within our expectation.

Maintain MARKET PERFORM with a higher Target Price of RM1.20 (from RM1.00) based on higher CY20E PBV of 1.02x (from 0.9x; - 0.5SD), reflecting mean. The target price implies 24.6x CY20E PER, at 12% discount to large-cap planters’ average of 28x, which we believe is fair given that TSH is one of the more profitable mid cap planters and has above-average FFB prospects (FY20: +4.5%). Additionally, we believe that there is a high possibility for consensus to revise earnings estimates upwards which could act as a catalyst. However, we maintain our MARKET PERFORM call after share price rally (+29%) since end-October.

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

Source: Kenanga Research - 26 Nov 2019