We believe there is a risk that TDM could be removed from the Shariahcompliant list in the next review at end-Nov 2015, due to its high interest income of 5.8% over revenue. Maintain NEUTRAL and MYR0.63 TP (10% downside). TDM is doing all it can to keep its Shariah status, including converting some of its funds into Islamic debt and trying to get the Shariah Council to verify the use of funds as Shariah-approved.

• At risk of being non-Shariah compliant in November review. TDM is at risk of being removed from the Shariah-complaint list come end-Nov 2015. This is due to the fact that based on its FY14 annual report, its interest income over revenue is at 5.8%, which crosses the allo wable 5% mark for Shariah compliance.
• Taking steps to remedy this situation. According to management, this is due to a structured product that TDM took up, which is a fixed income security that pays TDM regular investment income in the form of interest. TDM bought the fixed income security to manage and support funding for its Indonesian plantation subsidiaries which allows it to repatriate funds back to Malaysia from Indonesia. As at 31 Dec 2014, the sum invested in this structured product was MYR275.4m. TDM is now working on converting some of these funds into Islamic products within the next two to three months. We understand that management is also explaining the essence of this product to the Shariah Council in order to obtain some form of documentation to verify that it is for Shariahapproved purposes, ie the operations of a palm oil estate. With this documentation, TDM hopes to be able to appeal to the Securities Commission (SC) for an exemption in order to remain in the Shariahcompliant list in the next November review.
• There could be a chance of exemption. It is hard to say whether the SC would accept its appeal at this juncture, but provided TDM gets all its documentation done, we believe there could be a chance of exemption.In any case, even if TDM is removed from the list, we believe it wouldlikely only be for a temporary period of one year.
• Maintain NEUTRAL. We keep our SOP-based TP of MYR0.63, based on an unchanged 16x 2016 target P/E for its plantation division and 20x 2016 P/E for its healthcare division. We highlight TDM’s significant sensitivity to CPO prices, whereby every MYR100/tonne change could affect its earnings by 6-8% per annum. As valuations remain fair, we maintain our NEUTRAL recommendation on the stock.