TSH Resources reported a headline 1QFY24 net profit of RM25.2m (YoY: - 33.6%), mainly dragged by lower FFB production and losses from other segment. No dividend was declared for the quarter. Management expects CPO prices to hover at current level of RM3,800/mt while FFB production is expected to stay flattish this year. Given limited growth drivers amid sluggish FFB yields expected, we are ceasing coverage on TSH as we also redeploy our internal resources to broaden coverage on other sectors. Our last call on the stock is Neutral with a TP of RM1.02.

• 1QFY24 financial performance. The Group reported a lower revenue of RM242.4m, down 3.2% YoY, largely due to lower FFB production despite higher CPO prices. Meanwhile, bottomline tumbled 33.6% YoY to RM25.2m, dampened by plantation earnings (-9%) and widened losses of RM3.8m under the other segment due to weaker wood sales. Excluding the impact of negative movement in fair value adjustment of FFB amounting to RM4.7m, the plantation earnings would have been flat compared to 1QFY23. Average CPO prices improved from RM3,555/mt to RM3,587/mt while FFB production slipped 1% YoY to 196,566mt.

• Limited growth drivers. FFB production growth is expected to be muted this year due to the disposal of plantation assets in Indonesia and Sabah (13,214ha) in the last 2 years. Meanwhile, age profile is also inching uptrend (current: 13.4 years old) while FFB yield remains sluggish given the lack of replanting activities in the past.

• Dragged by hefty CPO export tax in Indonesia. Due to current unfavourable CPO export tax policy in Indonesia, TSH incurred sizeable CPO taxes when it exports its CPO products out of the country. During the first quarter, it incurred lower Indonesian export levy of RM20.3m compared to 1QFY23’s RM26m.

• Ceasing coverage. Investors should no longer depend on any of our financial forecasts for TSH in making investment decisions, nor infer any adverse opinion as a result of our decision to cease research coverage.

Source: PublicInvest Research - 21 May 2024