TSH remains top pick as profits improve in 4Q

KUCHING: Analysts remained sanguine on the prospects of TSH Resources Bhd (TSH) as the group registered normalised profit of RM31.5 million for its fourth quarter of financial year 2020, growing by more than 100 per cenr year on year (y-o-y).

This was largely driven by higher CPO price of RM2,779 per metric tonne (MT) during the current quarter.

Cumulatively, FY20 normalised earnings leapt by 90.4 per cent y-o-y to RM72.3 milliion supported by higher CPO price, commented MIDF Amanah Investment Bank Bhd (MIDF Research).

“Going ahead, we presume a much stronger earnings momentum in coming quarter, premised on both the elevated CPO price of above RM3,000 per MT level and better fresh fruit bunch (FFB) production,” it said in its notes yesterday.

Palm products segment continue to be the main driver earnings, it added. The group’s FY20 top line increased by 10.8 per cent y-o-y to RM670.1 million. This was primarily attributable to higher CPO price of RM2,478 per MT.

“We do note that the segment profit in the current quarter was partially offset by incremental export levy and duty on CPO imposed by the Government of Indonesia of RM9.1 million. Meanwhile, FFB shows a slight decline in its production figure as the group achieved 685,494MT in FY20, down by 3.5 per cent y-o-y

“Moving forward, we expect that the group’s FFB production growth will recover on the back of consistent application of fertilizer, as well as a relatively young average age profile of its oil palm trees in Indonesia.”

Performance of the others segment remains gloomy. In FY20, the top line of the other segment dipped by 0.02 per cent y-o-y to RM111.6 million, mainly due to lower contribution from the Bio-Integration division (on the back of lower sale of electricity) and Cocoa division (due to lower cocoa revenue).

“Nonetheless, we opine that the demand for both the downstream and cocoa products will improve in the coming quarter given the resumption of business activities following the relaxation of movement control order (MCO) rules,” MIDF Research added.

“Going ahead, we remain sanguine on the group’s earnings outlook particularly from its palm division premised on the current elevated CPO price level.

“The group’s FFB production is also expected to remain robust as it continues to maintain its commitment in diligently carrying out the fertiliser application and young age profile of its Indonesian oil palm estates, which will inadvertently lead to a better FFB yield.

“These would translate into positive developments to the group’s earnings growth in the upcoming quarter.”

Excluding land sale (which has yet to be concluded and still undergoing due diligence process), Hong Leong Investment Bank Bhd (HLIB Research) expect TSH’s FFB output growth trajectory to improve from FY21 onwards (seven to 11 per cent based on management’s guidance, with an estimated 2,000 of land bank to be graduated into mature bracket in FY21), underpinned by young age profile at its Indonesia operations.

“TSH remains as one of our preferred pick within the sector, supported by its high earnings sensitivity to CPO price swing and this will more than mitigate muted near-term earnings prospect at the cocoa processing and marketing segment, young age profile, and improving balance sheet.”

 

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