INVESTMENT HIGHLIGHTS

• 9MFY16 core net profit is below expectation

• 9MFY16 core net profit declined 12%yoy

• Earnings estimate reduced

• Propose to privatise Ekowood

• Maintain NEUTRAL with lower TP of RM2.05

9MFY16 core net profit is below expectation. TSH’s 9MFY16 Core Net Profit (CNP) of RM59.4m is below expectation at as it makes up 58% and 60% of consensus and our FY16 full year estimates. The impact of El Nino has been greater than expected on TSH’s plantation estates causing FFB volume to decline 10%yoy to 403,447 MT in 9MFY16. We have excluded RM22m in forex gain and other one off products in our CNP calculation. As expected, no dividend was declared in the third quarter as TSH usually declares dividend in the fourth quarter.

9MFY16 core net profit declined 12%yoy. 9MFY16 CNP fell by 12% yoy to RM59.4m as higher CPO price by 10% to RM2303/MT was not enough to offset lower FFB volume (down by 10%yoy). Similar to other plantation company, TSH FFB production has been affected by lagged impact from the severe 2015/16 El Nino.

Earnings estimate reduced. FY16 CNP has been reduced by 23% to RM75.9m after cutting our FFB yield assumption. FY17 CNP has been trimmed by 3% to RM124m due to similar reason.

Propose to privatise Ekowood. Separately, TSH has proposed to privatise Ekowood at RM0.40 per share via share issuance of TSH shares at issue price of RM1.92. Note that TSH currently owns 67.46% of Ekowood. Total new TSH shares to be issued are 11.39m (0.8% of current share base of 1.345b). We are neutral on the corporate exercise as potential dilution impact to FY17 EPS is less than 1%. Further details on the corporate exercise are explained in Page 2.

Maintain NEUTRAL with lower Target Price of RM2.05. The lower TP is in line with lower FY17 EPS estimate of 9.19 sen. Valuation method is unchanged by using Forward PE of 22.3x (mean valuation). Our NEUTRAL recommendation is maintained. On the positive side, TSH’s young tree age profile of ~7.3 years old should allow them to register better FFB growth in the long run. However, short term earnings may still be affected by low FFB volume.

Source: MIDF Research - 1 Dec 2016