Kenanga Research & Investment

TSH Resources - FY23 A Washout, Better FY24 Ahead

Publish date: Fri, 23 Feb 2024, 10:48 AM

TSH’s FY23 results met our forecast but disappointed the market. Its FY23 core net profit fell 62% YoY on flattish FFB harvest but lower CPO prices and higher costs. However, it is poised for a better FY24 on easier costs. We maintain our FY24F net profit forecast, TP of RM1.30 and OUTPERFORM call.

Its FY23 core net profit of RM76.7m (-62% YoY) met our forecast but missed the consensus estimate by 22%.

The core net profit excluded: (a) unrealised RM3.9m of foreign exchange loss; (b) fair value gains of RM0.6m; and (c) RM5.1m in goodwill impairment and disposal gain. The disposal gain is from stageby-stage sales of 13,898 Ha (72% unplanted) located in NE Kalimantan for RM731m cash in June 2022. RM429m of land sold in FY22 netting gains of RM311m. In Jan 2023, 575 Ha was transferred with RM28m in disposal gain. The remaining land is expected to be sold in FY24F with gains of RM120m-140m.

Its full-year FFB production of 905k MT (-2% YoY) was within our estimate of 907k MT. Likewise FY23 CPO of RM3,437 per MT was within our expectation. 4QFY23 CNP of RM27.2m was down QoQ on softer CPO prices which compressed margins somewhat but stronger YoY as last fourth quarter PATMI was distorted by RM35m in foreign exchange gains. 4QFY23 FFB output of 226k MT (-16% QoQ, +2% YoY) was weaker than usual as TSH’s fourth quarter typically dips -2% QoQ while the YoY drop arises from the disposal of two matured Sabah estates with 60K MT p.a. of FFB output were sold last March.

Earnings should improve over FY24-25F on relatively steady CPO prices amidst easier production costs. CPO prices are expected to stay rangebound, between RM3,500-4,000 per MT over 2024-25F as global edible oil demand is likely to continue growing 3%-4% YoY while a tight supply outlook is expected for 2024 and begin 2025 with below average inventory despite a muted El Nino. Average CPO prices of RM3,800 per MT is expected for the sector but TSH should average closer to RM3,400 due to Indonesian levies and duties where most of its estates are located. Input costs such as fertiliser and fuel have started easing since 2H FY23 and should continue in FY24F while FY25F should enjoy firmer palm kernel prices after sliding over FY22-23.

Expansion in progress. Proceeds from the staggered disposal of NE Kalimantan land (RM457m so far), Sabah estates (RM258m) and operating cashflow helped pared net debt from RM816m at the start of FY22 to RM48m (2% net gearing) as of 31 Dec 2023. Financially stronger, TSH has prepared the nursery and team to plant another 8k- 10k Ha of oil palm or an expansion of 20-25% over the next 2-3 years.

Forecasts. We maintain our FY24F net profit forecast and introduce our FY25F numbers.

Valuations. We also maintain our TP of RM1.30 based on FY24F P/NTA of 0.8x which reflect the l sector PBV for the smaller to mid-sized plantation players. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 3). Maintain OUTPERFORM.

Risks to our call include: (i) Western hostility towards palm oil on sustainability and bio-diversity issues, (ii) impact of weather and labour shortages on production, (iii) weak CPO and palm kernel prices, and (iv) cost inflation particularly fertilisers.

Source: Kenanga Research - 23 Feb 2024

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