KEY INVESTMENT HIGHLIGHTS

• Below expectations
• Plantation profit dropped on estates issues related
• Other segments lose narrower
• Earnings forecasts: tweaked
• Maintain NEUTRAL with a revised TP of RM1.24

Earnings below expectations. The 9MFY24 core PATMI came in below ours/consensus forecasts, accounting 56% and 63%, respectively, at RM62.0m (-17.5%yoy). Collectively, lower revenue was recorded on weaker estates activity, despite decent CPO and PK prices being realized.

Additionally, operating profit flattish at RM137.8m (-1.3%yoy) due to the compressed of other palm products' profit with lower unallocated corporate expenses recorded.

Palm products segment. During the quarter, the profitability of the plantation subsegment decreased by -22.0%yoy to RM55.8m, despite higher CPO average selling price realized circa RM3,683/Mt (+9.3%yoy) and PK of RM2,485/Mt (+49.3%yoy). The decline was mainly driven by; i) reduced FFB production due to natural biological yield cycles after consecutive high-yield years in FY22-23, ii) operational disruptions caused by a social dispute related to the Community Plantation Development Scheme (Plasma), and iii) the impact of the Indonesia Export Levy and Duty on CPO, which amounted to RM17.5m (- 34.9%yoy). Consequently, FFB production, CPO, and PK sales volumes fell by -28.1%yoy, -32.3%yoy, and -32.5%yoy, respectively.

Nonetheless, the segment's margin remained solid at 25.5%, a slight dip of 0.1 pts, reflecting stable production costs.

Others segment registered lower losses. A lower operating loss was seen in the other segment at -RM1.8m mainly due to higher timber sales and the cessation of cocoa division in 4QFY23.

Earnings estimates. Our earnings adjustment was mixed for FY24-26F, approximately by -3.6%yoy/+4.6%yoy/+9.0%yoy, after considering new average CPO TP price revision of RM4,200/Mt, RM4,300/Mt and RM4,000/Mt, respectively and lower OER as well CPO production due to Plasma-related issues in the Indonesia estates and biological tree rest concerns in Sabah region.

Maintain NEUTRAL. While TSH is primarily a pure upstream player with a decent correlation to CPO price movements, the company's estates on both sides have not been in an ideal condition to fully capitalize on the elevated CPO movement. Hence, we are maintaining our NEUTRAL call with a revised TP of RM1.24 (previously RM1.19) pegged to the same PER of 13x - nearly 5y avg mean, based on valuation year of FY25F's EPS of 9.6sen.

Source: MIDF Research - 22 Nov 2024