KEY INVESTMENT HIGHLIGHTS

• Within Expectations
• Plantation profit grew double digit growth
• Others segment losses narrower
• Earnings forecast maintained
• Maintain NEUTRAL with a revised TP of RM1.19

Earnings within expectations. The 1HFY24 core PATMI came in within ours/consensus forecast, accounting 54% and 52%, respectively, at RM60.3m (+35.3%yoy). Collectively, flat revenue was recorded at about RM494.9m (-2.4%yoy), despite decent CPO and PK prices being realized.

Operating profit grew to RM90.7m (+16.9%yoy) due to the expansion of other palm products' profit with lower unallocated corporate expenses recorded.

Palm products segment. The profitability of the plantation subsegment surged to RM53.2m (+15.3%yoy) despite the lower volume of CPO sold recorded, this was mainly due to higher CPO average selling prices realized amounted RM3,704/Mt (+6.0%yoy) and PK of RM2,250/Mt (+26.1%yoy). Notably, FFB production (-8%yoy) and CPO sales volume (-10%yoy) were slower in line with production trend in Indonesia.

During the quarter, profit was also impacted by the Indonesia Export Levy and Duty on CPO which stood around RM21.2m (-37%yoy). However, despite these challenges, the margin for the segment remains healthy at 25.1% (+3.8 pts), aligns with stabilised of cost of production.

Others segment registered lower losses. Its others segment continued its loss making, but narrower at -RM1.7m in tandem with higher sales generated from the wood division.

Earnings estimates. We keep our earnings estimates at this juncture as result was within with our expectations. TSH's performance has been relatively decent; despite FFB production being affected by dry weather environments in Sabah and Indonesia, in addition to the Indonesia Export Levy and Duty charges on CPO export. The earnings downside risks in 2HFY24 remain within the volatility of CPO movement, given that we're in the mist of high crop cycle seasonality. Thus, this could push the CPO price on a downward trend given supply risks deescalating.

Maintain NEUTRAL. While TSH operates primarily a pure upstream player with a strong correlation to CPO price movements, its share price does not necessarily reflect significant fluctuations unless there are notable developments that capable of influencing CPO prices above the RM4,500/Mt resistance level such as in FY22. Hence, we are maintaining our NEUTRAL call with a revised TP of RM1.19 pegged to PER of 13x - nearly 5y avg mean, as we rollover valuation-based year of FY25F EPS of 9.1sen.

Source: MIDF Research - 23 Aug 2024