TSH reported a disappointing set of 2Q results on the decline in production coupled with a weaker-than-expected CPO price. We trim our FY15F/FY16F earnings, cut our TP to MYR2.13 (from MYR2.57, 16% upside) and maintain BUY. Our worst-case downside for TSH is a P/E multiple sinking to 10x, which will lower our TP to MYR1.48. TSH remains a good growth stock to own, given its attractive age profile.

Earnings weaker than expected. TSH’s core earnings for 1H15 came in at MYR42.8m, making up 30% of our full year forecast. This was due to its production contracting by 6.9% instead of growing by 20.9% as we anticipated, due to adverse weather and changes in cropping patterns.

Earnings weaker than expected. TSH’s core earnings for 1H15 came in at MYR42.8m, making up 30% of our full year forecast. This was due to its production contracting by 6.9% instead of growing by 20.9% as we anticipated, due to adverse weather and changes in cropping patterns.

Production. Management thinks the weak YoY production was due to effects of last year’s dry weather as well as an unusually strong 2Q production last year. It believes 3Q will turn out to be stronger. Nevertheless, given the onset of another round of dryness, we cut our annual production growth to 13.1% for FY15 and to 8.2% from 12.1% for FY16. We also introduce our FY17 production forecast at 930.6k tonnes, representing a 17.4% YoY growth due compensatory effects from a weak FY16. TSH’s production somewhat mimics that of Bumitama Agri (BAL SP, BUY, TP: SGD1.44), which has plantations within the vicinity of that of the former’s.

Forecast change. We trim our FY16 earnings forecast by 17.2% to MYR120m, to factor in weaker production numbers. We also lower our 2015 average CPO price assumption to MYR2,200/tonne from MYR2,350/tonne. Our FY16 production forecast is lowered by 4.4% to factor in weaker production due to adverse weather conditions.

TP drops to MYR2.13. Our SOP-based TP drops to MYR2.13 from MYR2.57, as we factor in a lower target P/E of 15x against FY16 earnings from 16x previously on the outflow of funds. We also lower our FY15 P/BV for its wood division from 1.0x to 0.8x. Should its P/E collapse to 10x, TSH will trade at MYR1.48, which is some 16% downside from its current levels.