9MFY21 CNP of RM130.4m is above our (94%) and consensus’(92%) expectations on higher CPO prices. 4QFY21 FFB output could decline (on account of wet weather), while realised CPO price could be marginally higher. Raise FY21E CNP by 36%. Maintain MP with an unchanged TP of RM1.17 @ FY22E PER of 16x. TSH is unable to fully benefit from elevated CPO prices and a revision (higher) to levy and tax structure in Indonesia could further cap realized prices.

Above expectations. 3QFY21 Core Net Profit (CNP) came in at RM70.3m (+60% QoQ; +343% YoY), bringing 9MFY21 CNP to RM130.4m (+235% YoY) - above our (94%) and consensus’ (92%), estimates. 9MFY21 FFB output of 723k MT (+11% YoY) at 75% of our estimate and absence of DPS are as expected.

Results’ highlight. YoY, 9MFY21 CNP leapt (+235%) boosted by higher average CPO price (+43%) and FFB output (+11%), resulting in a 103% surge in palm segmental profit. QoQ, despite lower FFB output (-6%), 3QFY21 CNP rose (+60%) on higher average CPO price (+4%) as well as lower effective tax rate (-7.4ppt).

Outlook. We think FFB output could decline entering into 4QFY21 as wet weather deter crop evacuation. Despite higher CPO prices (MPOB QTD4QFY21: +17% QoQ), we only expect marginal increase in TSH’s realized CPO prices. Note that TSH’s estates are concentrated in Indonesia (~90% of production) where the group will be unable to fully enjoy the high CPO prices due to the biodiesel levy and export tax structure. Any revision (higher) to the levy and tax structure (given elevated prices) could further cap realized prices.

Raise FY21E CNP by 36% on higher CPO price of c.RM3,500/MT (vs. c.RM3,200/MT previously).

Maintain MARKET PERFORM with an unchanged TP of RM1.17 based on a FY22E PER of 16x, reflecting -0.5SD from mean. At this juncture, we think the stock lacks catalysts – it is unable to fully benefit from elevated CPO price (due to lower Indonesia prices), while being traded at ~20% premium to peers, making it a less attractive upstream play. ESG score for TSH is 71%.

Risks to our call include: (i) adverse dry weather impact on Indonesia’s production, (ii) revision to Indonesia’s biodiesel levy and export tax structure, and (iii) logistics disruptions (virus-led).

Source: Kenanga Research - 24 Nov 2021