TSH  Resources’  9M14  results  were  below  expectations  due  to continuing losses at its 50%-owned refinery, although losses narrowed due  to  higher  utilisation.  Maintain  NEUTRAL  on  fair  valuations  at current  levels  but  our  SOP-derived  TP  is  reduced  to  MYR2.28  (from MYR2.47)  a  1.3%  upside.  We  also  reduce  our  FY14/FY15  earnings forecast by 11%/8% to account for weaker refining performance.   
 
Results below expectation. TSH Resources’ core earnings came in at MYR107.6m,  making  up  70%  of  our  full-year  forecast.  We  deem  the results  below  expectations  as,  by  9M,  it  should  have  made  up  at  least 80% of our FY14 forecast. The weakness was due to continuing losses at  its  50%-owned  refinery.  We  had  expected  refining  to  turn  positive  in 3Q  as  volume  picked  up  seasonally. While  losses  did  reduce  on higher utilisation, it still sustained a loss of MYR1.6m.  

Production  still  at  strong  double-digits.  As  did  other  players  in Indonesia,  TSH  Resources  suffered  from  dry  weather  in  3Q.  This resulted  in  its  FFB  production  being  flat  QoQ  when  compared  to  a seasonally stronger 3Q. Nevertheless, its production growth still stood at 41.8%  for 9M  and  is  on  track to  hit  our  full-year expectation  of  677,600 tonnes. 9M’s realised price of MYR2,251/tonne was also in line with our expectation of MYR2,221/tonne.  

Earnings  forecast  cut.  We  have  trimmed  our  earnings  forecast  for FY14/FY15  by  11%/8%  to  MYR136m/MYR159m  respectively  and introduced  our  FY16  forecast  of  MYR169m.  TSH  Resources  is  trading close  to  our  SOP-derived  TP  of  MYR2.28.  Hence,  we  maintain  our NEUTRAL call. While TSH Resources will probably continue to maintain a  decent  double-digit  production  growth  rate,  earnings  growth  will  likely be at a slower pace due to cost pressures and drag from non-plantation earnings. 

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

TSH  Resources  is  involved  in  oil  palm  plantations  in  Sabah  and  Indonesia.  It  also  has  a  50%  stake  in  a  joint-venture  refinery  with Wilmar International (WIL SP, NR).

Recommendation Chart

Source: RHB