INVESTMENT HIGHLIGHTS

• Upgrade to BUY as value has emerged

• 1QFY17 Core Net Profit is within expectation

• 1QFY17 Core Net Profit surged 71% yoy

• Earnings estimate maintained

• Target Price unchanged at RM2.15

Upgrade to BUY as value has emerged.  In view of TSH strong 1QFY17 Core Net Profit which has grown 71%yoy, we believe that the rerating catalyst has just emerged. TSH is a key laggard among plantation stocks as its YTD share price decline of 4.8% trailed KL Plantation Index +4.1%. Valuation wise, TSH is currently trading at 18.5x PE which is close to its -0.5SD level of 18.1x. We believe that this is not justified due to its young age profile of ~7.3 years old which should allow them to register better FFB growth in the long run. TSH earnings prospect has also improved and we are expecting strong earnings growth exceeding 50% in FY17.

1QFY17 Core Net Profit is within expectation. At 23% of consensus and 22% of our forecast, TSH’s 1QFY17 Core Net Profit (CNP) of RM28.7m is within expectation. In our CNP calculation, we have excluded RM6.2m in forex gain and RM1.0m for other one off items. As expected, no dividend is announced in the first quarter.

1QFY17 Core Net Profit surged 71% yoy. The significantly higher core earnings improvement is driven by better CPO price (+39% yoy to RM2985 per MT) and higher FFB production (+10% yoy to 149,000 MT).

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 also maintain our FY18 CNP of RM139.1m with key assumptions being average CPO price of RM2725 per MT and FFB volume of 742,000 MT.

Target Price unchanged at RM2.15. The TP is based on unchanged Forward PE of 22.3x (mean valuation) on FY17 EPS estimate of 9.65 sen. We believe that our valuation is conservative as we are using mean valuation.

Source: MIDF Research - 25 May 2017