• Maintain NEUTRAL, TP drops to MYR1.10 from MYR1.20, 6% downside with c.2% FY24 yield. TSH Resources’ 9M24 core profit came in below our and Street estimates. While we expect 4Q24 earnings to gradually recover – due to higher CPO prices and slightly better output – elevated unit costs remain a concern, at this juncture. This stock is trading at a steep 13x FY25F P/E vs its peer range of 7-13x.

• 9M24 core profit came in below expectations, at 63-79% of full-year estimates. 3Q24 core profit plunged by 38% QoQ and YoY to MYR23.7m. The main deviation came from weaker-than-expected FFB production in 9M24 (-14% YoY vs our forecast of -5% YoY) and higher-than-expected effective tax rates of 30% in 3Q24 and 27% in 9M24 (vs our expectation of 24%). These were cushioned by lower interest expenses (-10% QoQ, -40% YoY) and higher JV contributions (-11% QoQ, +77% YoY), bringing 9M24 core profit growth to 46% YoY.

• 3Q24 FFB output dropped 10% QoQ (-28% YoY), as its Indonesia output decreased by 12% QoQ (-31% YoY), bringing 9M24 growth to -14% YoY. As a result ofthe lagged effect of El Nino, particularly in Sumatra, FFB production growth remained at -14% YoY in YTD-October. This is lower than management’s initial guidance of flattish growth for FY24, as well as our forecast of -5% YoY. While TSH is now expecting the dry weather impact to ease out and output to recover in 4Q24, we prefer to remain conservative and cut down our FFB growth forecast to -9% YoY for FY24 (from -5% YoY) and +3% YoY for FY25-26F (from +5-6% YoY).

• 9M24 estimated cost of production rose 11.6% YoY, no thanks to the drop in FFB production, despite TSH securing FY24 fertiliser requirements at prices that are 5-10% lower YoY. As we remain wary of the weak output, we further increase our unit costs assumptions by 2-6% for FY24-26F.

• TSH’s refining JV saw strong profits this quarter (+76.5% YoY), bringing 9M24 JV earnings to MYR12.2m (>6x YoY). This likely came on the back of higher CPO ASPs (-0.6% QoQ, +9% YoY) and we expect these contributions to remain strong, driven by an environment of higher CPO prices.

• We cut down our earnings forecasts by 14.5%, 13% and 13% for FY24-26. This is after reducing our FFB growth forecasts, imputing higher unit costs and accounting for slightly higher JV contributions as well as lower interest expenses.

• Maintain NEUTRAL, with a lower TP of MYR1.10 (from MYR1.20) based on 13x FY25F P/E, in line with its historical average. Our TP includes an 8% ESG discount, given its score of 2.6. TSH is trading at 13x FY25F P/E, which is at the high end of its peer range of 7-13x.

Source: RHB Securities Research - 22 Nov 2024