Despite a slight shortfall in production, TSH’s FY14 core earnings came in as expected,  on a lower-than-anticipated  proportion of its Indonesia production.  After  updating  the  book  value  of  non-core  assets  and marginally  raising  our  earnings  forecast,  we  lift  our  SOP-based  TP  to MYR2.38  (5% upside) from MYR2.28. We expect TSH to deliver stronger earnings  this  year.  Maintain  NEUTRAL  for  now  on  limited  upside  for stock price.

Results in line.  TSH  Resources’ (TSH)  core earnings were  in line withour expectation,  at MYR135.4m, after removing  the  forex loss and  other one-off  items.  Compared  with  FY13,  its  earnings  were  flat  due  to  the carryover  inventory  from  end-FY12  which  boosted  its  performance  in FY13.

Commendable  production  growth.  Despite  falling  short  of  our expectation,  TSH’s  FY14  FFB  production  of  640.4k  tonnes  still represented  a  strong  growth  of  18.7%  YoY.  Its  Indonesia  production alone grew by 24.4%, which nearly matched that of Bumitama Agri (BAL SP, BUY TP SGD1.48).

Downstream business.  Its 50%-owned refinery in Sabah managed to turn in a pre-tax profit of  MYR3.2m on  a seasonal factor, bringing fullyear  profit  to  MYR8.3m.  Nevertheless,  this  compares  poorly  to  itsMYR26.9m profit booked in FY13. Since TSH’s refining margin continues to  be  thin,  we  do  not  expect  any  significant  improvement  in  its downstream contribution.

Marginal change in forecast. We have raised our earnings forecast for FY15 by 3.8% to account for the lower-than-expected interest  expense while  maintaining  our  FFB  production  forecast  of  774k  tonnes,  which represents a 20% annual increase.

Maintain NEUTRAL. TSH continues to be among the best in Malaysia in terms of growth but we consider  its  valuation  fair at the current levels, therefore maintain a NEUTRAL rating on the stock.

Source: RHB