Review

• TSH’s 4QFY23 results came in below market expectations. The deviation was mainly due to a lower-than-expected contribution from JV as well as higher operating costs. Stripping out the disposal gain and other exceptional items, 4QFY23 core net profit decreased 1.2% YoY to RM18.6mn.

• Cumulatively, FY23 core net profit fell by 57.2% YoY to RM77.3mn on the back of an 18.3% drop in revenue.

• Palm Product: FY23 operating profit fell 25.3% YoY to RM225. CPO price fell 16.2% YoY to RM3,437/tonne while PK price also plunged 35.3% YoY to RM1,727/tonne. Meanwhile, FFB production also dropped by 3.2% YoY to 679.0k tonnes due to the dry weather in Indonesia and also disposals of two estates in Sabah last year.

• Non-palm commodity: Operating losses narrowed to RM11.8mn in FY23 compared to RM39.8mn registered a year ago. If we excluded the fair value loss on forest planting expenditure of RM37.5mn registered in FY22, this segment actually recorded a higher loss in FY23.

• The group declared a first and final dividend of 2.5 sen/share for the quarter under review.

Impact

• FY24 and FY25 earnings forecasts are revised down by 0.4-0.6% respectively, after updating the FY23 figures.

Outlook

• Management is cautiously optimistic about FY24 performance and expects CPO price to be supported at around the current price level.

• According to management, with a stronger balance sheet, TSH will undertake new planting at a steady pace on its unplanted land bank over the next few years to progressively expand its planted hectarage.

• However, we believe the increase in global oilseed production in 2024 on larger soybean and sunflower seeds could potentially pose a downside risk to CPO prices.

Valuation

• Maintain TSH’s TP at RM1.14/share, based on a CY24 PER of 16x. TSH’s share price has appreciated by about 11% since we upgraded the stock to BUY in Nov 2023. With the limited total potential upside of less than 7% now, we downgrade TSH to SELL from Buy.

Source: TA Research - 23 Feb 2024