• FY16 core net profit is within expectation

• Higher tax pulled down FY16 earnings

• FY17 earnings estimate maintained

• Maintain NEUTRAL with TP of RM2.15

FY16 core net profit is within expectation. TSH’s FY16 Core Net Profit (CNP) of RM79.3m is within expectation at it is close to our forecast of RM79.0m. However, it is below consensus estimate of RM96.6m as consensus may have assumed higher FFB production. In our CNP calculation, we have excluded RM15.8m in forex loss and net loss of RM7.0m for other one off items. As expected, 2.0 sen dividend was declared.

Higher tax pulled down FY16 earnings. FY16 CNP declined 9% to RM79.3m due to increase in tax (+138% to RM46.3m). However, earnings improved at Core PBT level (+20% to RM130.0m) as the impact of higher CPO price by 18% more than offset the 8% decline in FFB volume.

FY17 earnings estimate maintained. FY17 CNP is maintained at RM129.8m. Key assumptions are average CPO price of RM2725 per MT and FFB volume of 672,000 MT. We have also introduced our FY18 CNP of RM139.1m with average CPO price of RM2725 per MT and FFB volume of 742,000 MT.

Maintain NEUTRAL with Target Price of RM2.15. The TP is based on unchanged Forward PE of 22.3x (mean valuation) on FY17 EPS estimate of 9.65 sen. 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, low dividend yield at less than 1.5% may limit the share price upside.

Source: MIDF Research - 28 Feb 2017