Review

• TSH’s 1QFY24 results came in within market expectations. Stripping out disposal gain and other exceptional items, 1QFY24 core net profit surged to RM22.7mn. The commendable results were mainly attributable to reduced losses from JVs and lower finance costs.

• Palm Product: 1QFY24 operating profit fell by 8.6% YoY to RM46.2mn. However, if we exclude the RM27.6mn disposal gain recorded in the previous year, the core operating profit actually doubled on the back of stable CPO price at RM3,587/tonne (+0.9% YoY) and higher PK price of 9.0% YoY to RM1,930/tonne. Meanwhile, FFB production declined by 1.4% YoY to 196.6k tonnes due to seasonal factors.

• Non-palm commodity: In 1QFY24, operating losses widened to RM3.8mn compared to RM3.3mn recorded in the same period last year. This increase was primarily attributed to decreased revenue from the wood division.

• No dividend was declared for the quarter under review.

Impact

• No change to our earnings forecasts.

Outlook

• Management is cautiously optimistic about FY24 performance and expects CPO price will be sustained at current levels due to the impact of flooding in far southern Brazil, which has tempered expectations for a strong soybean crop production.

• According to management, with a stronger balance sheet, TSH will undertake new planting at a steady pace on its unplanted land bank over the next few years to progressively expand its planted hectarage.

• We anticipate that the movement of palm oil prices in coming months will be influenced by both palm oil production in key producing countries (Malaysia and Indonesia) and weather patterns in the primary soybeangrowing regions of Brazil and Argentina.

Valuation

• Rolling forward our valuation base year to CY25, we revise TSH’s TP higher to RM1.37 (previously RM1.14), based on a PER of 18x. We upgrade TSH's rating from Sell to BUY, reflecting the increased upside potential and more promising outlook.

Source: TA Research - 21 May 2024