MIDF notes TSH’s FY23’s core PATMI came-in within but fell below the consensus full-year forecast, accounting 103% and 77%, respectively, at RM95.0m. This it said was attributed to a decline in revenue by -18.4% to RM1.07bn, on lower price effects of CPO and PK in the palm product segment. Furthermore, operating profit contracted to RM193.4m despite higher palm product registered, as losses from others subsegment amounted -RM11.8m dragged the overall profitability.
The profitability of the plantation subsegment squeezed to RM225.4, no thanks to the lower CPO average selling prices realized amounted RM3,437/Mt and PK of RM1,727/Metric Ton. Meanwhile FFB production recorded a slight decline to 905,437 Mt (-2.0%yoy), influenced by dry spells condition in Kalimantan, where a hotspot spotted, and a reduction in harvesting area due to the disposals of two estates in Sabah in the 1HFY22. Despite these challenges, the margin for the segment relatively stable at 22.6%, aligns with stabilised of cost of production.
In FY23, its others segment continued its loss making but narrower to -RM11.8m. This downturn can be attributed to the fair value gain on forest planting expenditure of RM0.3m.
The house retained its earnings estimates as the net profit came in line with expectations. MIDF said TSH’s performance has been consistently positive; however, the FFB production was impacted by the dry weather conditions in Indonesia, exacerbated by the additional challenges of the Indonesia Export Levy and Duty on CPO. There is potential for an earnings boost in 2Q24, as both Malaysia and Indonesia are anticipated to experience a Mild El-Nino, which could drive upward movement in CPO prices.
MIDF maintains its NEUTRAL call, adding that while TSH operates primarily as a pure upstream player with a strong correlation to CPO movements, its share price does not necessarily reflect significant fluctuations unless there are notable developments capable of influencing CPO prices beyond the RM4,500/Mt level observed in 2022.
