TSH delivered  a  strong set of 9M earnings, even after stripping out the MYR85m exceptional gain from sale of its Pontian United stake, due to a lower than expected tax rate.  We raise our FY13/FY14 profit forecasts by  20%/27% after factoring in  the  lower  effective tax rate  and stronger PBT.  Maintain  Neutral,  with  our  FV  raised  to  MYR2.89  from  MYR2.28 previously.

• Strong 9M numbers.  Stripping out  the  EI gains of MYR85m, TSH still delivered  strong  9MFY13  earnings  of  MYR85.6m,  surpassing  our  full year  forecast  for  MYR82.3m.  The  company’s  effective  tax  rate  was extremely  low  at  4.2%  owing  to  tax  exemptions  due  to  investment allowances. The 9M core PBT of MYR92.1m, which made up 82% of our full  year  forecast,  was  still  commendable  considering  that  4Q  will potentially  experience  the  twin  impact  of  higher  production  and  higher prices.  Meanwhile,  TSH  also  delivered  very  impressive  fresh  fruit bunches (FFB) growth of 34% YTD.
• Raising forecasts. We raise our net profit forecasts by 20% for CY13 as we lift our  PBT estimate by some MYR10m and assume an effective tax rate  of  10%.  Our  CY14  net  profit  forecast  is  raised  by  27%,  largely stemming  from  a  higher  PBT  forecast  of  MYR175m  vs  MYR138m previously. We are also factoring in a stronger realised CPO price for the company’s Indonesian operation due to the lower discount  of 7% against Malaysian price, against 10.5% previously.
• Net  gearing  to  come  down.  The  MYR196m  in  proceeds  TSH  will receive  from  the  disposal  of  its  stake  in  Pontian  United  Plantation  will help pare down debt.  As at  end-3Q, the company’s  net gearing stood at 88%, which ease to 70% if the disposal proceeds are incorporated.
• Maintain  Neutral.  We  maintain  our  NEUTRAL  call  on  the  stock.  The run-up  in  its  stock  price  in  the  past  week  has  priced  in  the  strong  3Q numbers,  which were in large part  due to  a  lower effective tax rate.  We have  raised  our  SOP-based  fair  value  (comprising  16x  CY14  for  the plantations division and 0.9x book for the other divisions) to MYR2.89 (from MYR2.28), after imputing the revised earnings.  

Financial Exhibits

SWOT Analysis

• TSH has strong production growth but is highly geared, thus limiting its near term expansion opportunities.

Company Profile
TSH is involved in oil palm plantations in Sabah and Indonesia.

Recommendation Chart

Source: RHB