Review

• TSH’s 2QFY24 results fell short of expectations, mainly due to lowerthan-anticipated margins and a one-off RM22mn depreciation charge following the termination of the remaining land disposal. Excluding disposal Gains and Other Exceptional Items, 2QFY24 Core Net Profit dropped 8.6% YoY to RM15.9mn.
• However, on a cumulative basis, core net profit surged 83.9% YoY to RM38.5mn, driven by higher profits from the Palm Products Segment, lower corporate expenses and finance costs, and increased contributions from associates and JVs.
• Palm Product: Despite a 4.7% YoY decline in FFB production, 1HFY24 operating profit rose by 3.4% YoY to RM105.4mn, driven by higher average CPO Prices at RM3,645/tonne (+3.5% YoY) and PK Prices at RM2,088/tonne (+17.4% YoY).
• Non-palm commodity: In 1HFY24, operating losses increased to RM5.6mn from RM5.2mn in the same period last year. The larger loss was mainly due to higher production costs and major maintenance of the bio-mass power plant, resulting from an extended shutdown for annual inspection in 1QFY24.
• No dividend was declared for the quarter under review.

Impact

• We have reduced our FY24-FY26 earnings forecasts by 8.8%-15.9% due to a downward revision in our FFB production assumption for Indonesia, accounting for the depreciation charge and lower margins.

Outlook

• Management remains cautiously optimistic about FY24 performance and expects that future CPO prices will be impacted by factors such as shifts in supply and demand and fluctuations in stock levels.
• Meanwhile, according to management, 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 believe the CPO prices are likely to be affected by bumper soybean harvests in the U.S. and South America. The increase in supply in these regions, soybean in particular, is expected to put downward pressure on the CPO prices.

Valuation

• Post the earnings adjustment, we have lowered TSH’s TP to RM1.07 (previously RM1.22), based on CY25 PER of 16x. Maintain Sell.

Source: TA Research - 23 Aug 2024