INVESTMENT HIGHLIGHTS

• 1QFY19 normalised earnings of RM9.6m is in line with our expectation but below consensus

• Double digit growth rate in FFB production overcome the fall in average selling price (ASP) of both CPO and CPKO

• Earnings forecasts for FY19 and FY20 were fine-tuned to reflect our downward adjustment in CPO and CPKO price

• Maintain NEUTRAL with a revised TP of RM0.89

1QFY19’s core earnings within our expectation. TSH Resources (TSH) 1QFY19 normalised earnings came in higher at RM9.6m which is within ours but below consensus expectations, accounting for 18.8% and 14.3% of full year FY19 earnings respectively. Note that based on historical track record, the first quarter results usually accounted for between 15% and 20% of the full year financial year results. During the quarter-in-review the group’s higher FFB growth rate made up for the lower ASP of CPO and CPKO.

CPO price remains on the downtrend… TSH’s average CPO and CPKO price for 1QFY19 declined by -17.5%yoy and -40.6%yoy to RM1,911/mt and RM1,214/mt respectively. This led to lower 1QFY19 CPO and CPKO sales of RM95.3m (-21.9%yoy) and RM22.0m (-50.8%yoy) respectively. Moving forward, we do not expect significant recovery in both CPO and CPKO price.

…but overwhelm by higher FFB production. On a yearly basis, the group’s FFB production managed to achieve 204,555mt, translating into a growth of +13.0%yoy. This was predominantly premised on its better age profile of planted areas and more planted areas coming into maturity, especially in Indonesia. Thus, the higher sales volume of CPO and CPKO resulting from higher FFB yield were able to partially mitigate the lower ASP.

Earnings estimates. We fine-tuned FY19 and FY20 earnings forecasts marginally by -1.6% and -2.3% to RM50.2m and RM63.7m respectively to better reflect the average CPO and CPKO price transacted thus far.

Target Price. We are roll forward our valuation base year to FY20 and derive a new target price of RM0.89 (previously RM1.05). This is premised on pegging its FY20EPS of 4.6sen to target PER of 19.4x (previously 22.3x) which is the group’s 5-year historical average. We view that the lower valuation multiple reflect the existing low CPO price environment.

Source: MIDF Research - 28 May 2019