TDM’s 9MFY13 net profit was below our expectations, coming in at 50% of FY13 forecasts, due to higher startup losses at its Indonesian operations, lower EBIT margins at the healthcare division and higher effective tax rates.  Although we expect 4Q13 to be TDM’s strongest quarter, we believe it may still fall short of our estimates. Hence, we trim our FY13 forecasts by 14.3%. Maintain NEUTRAL.

- Below expectations. TDM’s 9MFY13 net profit was below our expectations, coming in at just 50% of FY13 forecasts. The main variances include: i) higher-than-expected startup losses at its Indonesian operations, ii) lower-than-expected EBIT margins at the healthcare division, and iii) higher-than-expected effective tax rates.

- Net profit down 68% y-o-y. TDM’s 9MFY13 net profit slumped 68% y-o-y on the back of a 17% drop in turnover. This was mainly attributed to a 26% fall in CPO prices and an 11% decline in fresh fruit bunches (FFB) production leading to a 72% dive in PBT contributions from the plantation division.

- Reducing FY13 forecasts. Although we expect 4Q13 to be TDM’s strongest quarter, we believe it may still fall short of our estimates. Therefore, we trim our FY13 forecasts by 14.3%, after incorporating our revised assumptions of: i) lower EBIT margins for the healthcare division, ii) higher startup losses at its Indonesian operations, and iii) higher effective tax rate. No changes to our FY14 forecast.

- Maintain NEUTRAL. Although we believe TDM has long-term potential, its valuations are a bit rich at this juncture, given our projection that a big earnings jump would only materialise in FY16/17, when its Indonesian plantations start contributing more significantly. On an EV/planted ha basis, TDM’s MYR26,000-28,000/ha (USD8,000-9,000/ha) valuations are inexpensive compared with its Malaysian peers’ MYR35,000-55,000/ha (USD11,000-17,000/ha) and its Indonesian peers’ USD18,000-22,000/ha. We maintain our MYR0.97 SOP-based TP, attributing unchanged FY14 P/Es of 16x and 20x to its plantation and healthcare divisions respectively. Maintain NEUTRAL.

Source: RHB