Period     2Q13/1H13

Actual vs. Expectations   Within expectations as reported 1H13 core net profit* of RM45.7m makes up 49% of the consensus forecast (RM92.8m) and 44% of ours (RM103.7m). Although the CPO price was below our expectation, TSH’s FFB growth came in stronger than expected as a compensating factor.

We view the results positively. TSH’s ability to register 1H13 core earnings growth of 25% YoY despite a 27% decline YoY in CPO prices makes it a clear outperformer compared to the other pure planters (which have generally registered earnings decline so far). We reckon its robust performance is due to its superior FFB growth on account of its younger tree age profile. On top of that, TSH also enjoys a good natural hedge against low CPO prices by virtue of its refineries JV with Wilmar in Sabah.

Dividends    As expected, no dividend was announced.

Key Results Highlights  YoY, 1H13 core net profit jumped 25% to RM45.7m due to improved PBT from its Sabah refineries JV with Wilmar (+82% to RM13.8m) and a superior 39% FFB growth to 250,730mt. Both of these factors combined to counter the adverse impact of the CPO price decline of 27% to RM2176/mt.

QoQ, the 2Q13 core net profit improved 6% to RM23.5m due to better average CPO price of RM2204/mt (+3% QoQ). Note that its 2Q13 result is the third successive growth quarter (YoY) after previously registering four consecutive quarters of YoY decline.

Outlook    We believe the worst should be over for TSH.

Change to Forecasts   Maintaining our FY13E-FY14E earnings of RM104m-RM160m. Note that for FY13E, we have reduced our CPO price estimate by 4% to RM2400/mt (from RM2500/mt). However, we have also increased the FFB production estimate by 5% to 547k mt due to stronger than expected growth so far in 1H13. Net impact for FY13E is unchanged earnings at RM104m, which translate into a decent 16% earnings growth YoY.

Rating   Maintain OUTPERFORM

Valuation     Maintaining our TP of RM2.57 based on an unchanged Fwd. PER of 12.9x on CY14E EPS of 19.9 sen.

Risks    Worse than expected CPO prices.

Lower than expected FFB production.

Source: Kenanga