9MFY24 results for TSH came within Kenanga estimate but below consensus expectation. 3Q FFB yield was dampened by El Nino but better margins from firm CPO and PK prices as well as easier input costs helped lifted earnings. No adjustment to FY24-25F core net profit. TP of RM1.30 is also maintained along with our OUTPERFORM call.

9MFY24. Excluding unrealised exchange gain amounting to RM10.6m, net fair value loss of RM1.5m and a small disposal gain of RM0.4m, core net profit grew 31% YoY to RM64.8m for 9MFY24 or 68% of Kenanga and 63% of consensus full-year forecasts. YoY, revenue declined 10% due to weaker FFB production (-14%) but earnings held better as margins crept up on firmer CPO price (+6%) and lower cost thanks to weaker fertiliser and diesel prices as well as stronger MYR and higher PK price (+28%).

3QFY24. CPO price of RM3,683 (-1% QoQ, +9% YoY) held firmer than expected for a 3Q and cost stayed under control even though harvest of 0.185m MT FFB (-10% QoQ, -28% YoY) was lower than expected as yields among the group's estates in Sumatra moderated following several good harvests in the past two years. Nonetheless, after hitting a low in July, monthly harvest has been on the uptrend since.

Surprise dividend of 2.5 sen against our expected full year DPS of 2.4 sen for FY24. As we are not expecting additional dividends for the rest of the year, we are keeping FY24 DPS at 2.5 sen.

Outlook. Firm FY24-25 earnings are likely to stay firm on robust CPO prices, underpinned by a supportive edible oil price environment where global edible oil demand looks likely to grow faster than supply. Thus, as inventory levels are expected to decline YoY in CY24 as well as in CY25, we are maintaining average CPO price of RM4,000 per MT for the sector with TSH expected to achieve prices closer to RM3,700 per MT due to discounts for its Indonesian palm oil. Input costs such as fertiliser and fuel are expected to stay easy YoY while strong PK prices are likely to sustain, all helping towards containing cost. Moving forward, unit cost should stay manageable as harvest is expected to recover 13% YoY.

New planting. Having divested less-strategic assets to de-gear and to re-capitalise its balance sheet, TSH has embarked on planting up land already in the group's possession. Planted oil palm area should expand from around 40k to 47k-50k Ha over the coming 2-3 years.

Forecasts. Maintain FY24-25 core net profit forecasts.

Valuations. No change to TP of RM1.30 which is based on P/NTA of 0.8x, reflecting the sector PBV for the smaller to mid-sized plantation players. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 3). Maintain OUTPERFORM call.

Risks to our call include: (i) EU hostility towards palm oil on sustainability and bio-diversity issues, (ii) impact of weather and labour shortages on production, and (iii) cost inflation particularly fertilisers.

Source: Kenanga Research - 22 Nov 2024