TSH: Robust Earnings Beat Expectations on Cost Efficiencies, Outlook Positive

A leading investment bank reports a significant outperformance in core earnings, largely driven by astute cost management and robust commodity prices. The company’s 9M25 core earnings substantially exceeded both internal and Street estimates, signaling a strong financial footing despite some operational headwinds.

Performance Review

For the first nine months of 2025 (9M25), core earnings soared to MYR160 million, marking a substantial 92% year-on-year increase. This figure accounted for 89% of the full-year forecasts and met 100% of Street estimates. While third-quarter (3Q25) core earnings experienced a marginal 1% sequential dip, they skyrocketed 124% year-on-year, underscoring the company’s strong growth trajectory.

This impressive performance was primarily attributed to lower-than-expected production costs, which declined approximately 8% year-on-year against an estimated increase of 4%. This cost efficiency was bolstered by higher Crude Palm Oil (CPO) and Palm Kernel (PK) average selling prices (ASPs). CPO ASPs in 9M25 climbed 8% year-on-year to MYR3,932/tonne, surpassing initial estimates, while PK ASPs surged by 56% year-on-year.

Operational Landscape and Challenges

Despite the strong earnings, fresh fruit bunch (FFB) output saw a 1% quarter-on-quarter decline in 3Q25. The 10M25 FFB output growth of 2.2% year-on-year slightly trailed management’s guidance of 4-8%. However, management remains optimistic about achieving its full-year FFB target, anticipating a strong fourth-quarter pickup due to improved weather conditions. The investment bank maintains a conservative stance, trimming its FY25-27F FFB growth forecast to 3-4% year-on-year from an earlier 4-6%.

The company’s strategy of not engaging in forward sales is noted, reflecting its confidence that sustained export demand and the upcoming B50 mandate will support prices. Unit costs are expected to see a 0-5% year-on-year decrease, primarily offset by better output in the final quarter, with fertiliser activities projected to pick up slightly.

Outlook and Analyst Revisions

In light of the strong performance and favorable market dynamics, the investment bank has revised its CPO price assumptions upwards to MYR4,350/tonne for 2025F (from MYR4,100) and MYR4,250/tonne for 2026F (from MYR4,100). PK price assumptions have also been increased to MYR3,550 for 2025F (from MYR3,300) and MYR3,450 for 2026F (from MYR3,200).

These adjustments, combined with lower unit costs and revised FFB output, have led to a significant upgrade in earnings forecasts. The bank raised its FY25-27F earnings by 10.5%, 12.9%, and 3.3% respectively. The company currently maintains a Neutral rating, with a target price of MYR1.40, based on an unchanged 12x FY26F P/E, which aligns with its 5-year historical average and includes an ESG discount.