Review

• TSH’s 3QFY23 results came in above ours but within market expectations. The deviation was mainly due to lower-than-expected finance cost. Stripping out the disposal gain and other exceptional items, 3QFY23 core net profit decreased 4.0% YoY to RM37.7mn.

• Cumulatively, the group registered a core net profit of RM58.7mn in 9MFY23 compared to RM152.7mn registered a year ago (-61.6% YoY) on the back of 21.4% drop in revenue.

• Palm Product: 9MFY23 operating profit plunged 28.8% YoY to RM173.5mn on the back of a 23.2% drop in revenue. CPO price fell 19.2% YoY to RM3,465/tonne while PK price also plunged 41.7% YoY to RM1,731/tonne. Meanwhile, FFB production also dropped by 3.2% YoY to 679.0k tonnes due to the disposals of two estates in Sabah last year.

• Non-palm commodity: Operating losses narrowed to RM9.0mn in 9MFY23 compared to RM39.9mn registered a year ago. If we excluded the fair value loss on forest planting expenditure of RM34.5mn registered in 3QFY22, this segment actually recorded higher loss in 9MFY23.

• No dividend has been declared for the quarter under review.

Impact

• We tweak our FY23 -FY25 earnings forecast higher by 12.3% - 58.8%, respectively after factoring in better-than-expected 3QFY23 results, lower finance cost and higher margins.

Outlook

• Management is cautiously optimistic about FY23 and expect CPO price to be supported at around the current price level underpinned by dry weather condition in South America as well as slowdown in palm oil production, which may help to ease the palm oil stockpile.

• However, we believe the increase in global oilseed production in 2024 on larger soybean and sunflower seed could potentially pose a downside risk to CPO prices.

• We see an earnings recovery in FY24, underpinned by lower production cost and improving balance sheet.

Valuation

• We revise TSH’s TP higher to RM1.14 (previously RM1.02), based on a CY24 PER of 16x. With the potential upside of more than 12%, we upgrade TSH to BUY from sell.

Source: TA Research - 24 Nov 2023