KEY INVESTMENT HIGHLIGHTS

• 9MFY19 normalised earnings of RM37.0m (-9.9%yoy) is in line with our but exceeded consensus expectations

• The lower 9MFY19 earnings were mainly attributable to lower crude palm oil (CPO) price (-13.5%yoy)

• Anticipation of higher CPO price moving forward to support the group’s future earnings

• Maintain NEUTRAL with a revised TP of RM1.08

Within expectation. TSH Resources Bhd’s (TSH)’s 3QFY19 plunged by -54.0%yoy to RM16.6m due to the sustained low CPO price. Cumulatively, the group’s 9MFY19 normalised earnings fell by -9.9%yoy to RM37.0m. This result was within our expectation but exceed consensus’, accounting for 73.6% and 93.5% of the full year FY19 earnings respectively. The lower earnings were mainly due to lower CPO price. However, notable recovery of CPO price in 4QCY19 expected to support earnings recovery trajectory.

Double digit decline in CPO price. TSH’s average CPO price for 9MFY19 declined by -13.5%yoy to RM1,906/mt. This led to the group’s palm products segment profit to fall by -46.2%yoy to RM57.3m. Nonetheless, we opine that given the recent recovery of CPO price to more than RM2,500/mt would lead to 4QFY19 earnings recovery.

Expecting consistent FFB production in 4QFY19. The group’s 9MFY19 FFB production grew marginally by +0.2%yoy to 653,148mt. However, this was insufficient to overcome the decline in CPO price as mentioned above. Nonetheless, we opine that the group’s FFB production to be remained healthy and would partially contribute to the better earnings ahead.

Operating profits at others segment improved. The group’s 9MFY19’s operating profit from the other segment businesses increased by +22.6%yoy to RM25.5m as a result of higher profit contribution from bio-integration division.

Earnings estimates. We are maintaining our earnings forecasts as the results in line with our expectation.

Target Price. We are revising our target price to RM1.08 (previously RM0.89) which is derived by pegging its FY20EPS of 4.6sen to target PER of 23.4x. Note that the target PER is one standard deviation above of the group’s 2-year historical average to reflect the higher growth of FFB production and the recovery of CPO price in 4QFY19.

Source: MIDF Research - 26 Nov 2019