We see no surprises in TDM’s 1H14 results, with  net profit  comprising 42%  of  our  FY14  projection,  as  TDM  generally  records  30-40%  of  its profits  in  1H  of  the  financial  year.  We  are  reviewing  our  CPO  price assumptions,  and  reassessing  our  investment  views.   For  now  we maintain our current projections. We highlight that every MYR100/tonne change in CPO price could affect TDM’s net earnings by 6-8%.

Numbers  in line.  TDM’s 1H14 net profit was  in line with our forecast, but below consensus  estimate, coming in at 42%/36%  of our/consensus FY14  projections.  TDM generally records 30-40%  of its full-year profits in 1H, as has been the case in the last few years.

TDM’s 1H14 net profit surged  more than 200%, coming from a low base in 1H13. Group revenue rose 10% y-o-y in 1H14, driven by an 8%y-o-y  rise  in  plantation  revenue  and  a  13%  increase  in  healthcare revenue.  The  growth  in  plantation  revenue  was  mainly  attributed  to  a 17% increase in CPO prices, offset by a 3% drop in FFB production. Thehealthcare division posted a 3% drop in PBT due to pre-operating losses incurred  at  its  new  Kuantan  Medical  Centre,  which  is  expected  to commence operation in 4Q2014. YTD-July FFB production growth was -2.5%, in line with our projected -2.9% growth for FY14.

Maintaining forecasts.  We are reviewing our CPO price assumptions,and  therefore,  recommendation  post-results  season.  As  such,  wemaintain  our  assumptions  of  MYR2,552/tonne  for  FY14  and MYR2,712/tonne  for  FY15  for  now.  We  highlight  that  every MYR100/tonne change in CPO price could affect TDM’s net earnings by 6-8%. 

Maintain  NEUTRAL.  We  leave  our  SOP-based  FV  at  MYR1.07.  We continue  to  maintain  our  view  that  although  TDM  has  long-term potential,  its  valuations  are  a  bit  rich  at  this  juncture  –  given  our projection that a big earnings jump  may  only materialise in FY16/FY17 when  its  Indonesian  plantations  start  to  contribute  more  significantly. Our  valuation  targets  are  unchanged  at  P/Es  of  16x  and  20x  on  its plantation and healthcare divisions respectively. Maintain NEUTRAL.

Source: RHB