TSH: Strong Earnings Beat Expectations on Cost Efficiencies, Target Price Raised

Financial highlights reveal a robust performance for the period, with core net profit for the first nine months of FY25 (9MFY25) significantly surpassing both AmInvestment Bank’s forecast by 34% and consensus estimates by 25%. The company’s net profit more than doubled year-on-year to RM151.4 million in 9MFY25. This strong showing was primarily driven by higher Crude Palm Oil (CPO) prices, effective cost management leading to lower operating expenses, and a favourable decline in the effective tax rate. Additionally, write-backs of impairments on trade receivables and fair value gains on biological assets contributed to the improved profitability.

Performance Highlights

Comparing 3QFY25 against 2QFY25, net profit saw a 15.2% improvement, further bolstered by the aforementioned write-backs and fair value gains. The average CPO price for 9MFY25 stood at RM3,876 per tonne, an increase from RM3,657 per tonne in 9MFY24. Quarterly CPO prices also saw a marginal increase from RM3,695 per tonne in 2QFY25 to RM3,765 per tonne in 3QFY25.

Challenges and Future Outlook

Despite the positive financial performance, challenges were noted, including a slight dip in Fresh Fruit Bunch (FFB) production by 1.2% quarter-on-quarter in 3QFY25. A key consideration for the future is the increasing average age of the company’s oil palm trees, compounded by a lack of replanting efforts, which could impact long-term production.

Looking ahead, AmInvestment Bank has raised its FY26F average CPO price assumption from RM3,950 per tonne to RM4,050 per tonne, citing anticipated support from Indonesia’s B50 biodiesel policy implementation in 2H2026. This upward revision in CPO price assumptions has led to a 3.4% increase in the bank’s FY26F net profit forecast and a substantial 37.7% upgrade to FY25F net earnings. The company also engaged in significant share buybacks, spending RM94.3 million in 9MFY25, compared to zero in the prior year, alongside capital expenditure of RM53.9 million.

Analyst View and Recommendation

AmInvestment Bank maintains its “HOLD” recommendation for the company, while raising its target price to RM1.33 per share from the previous RM1.29. The revised target price is based on a FY26F P/E of 12x, which is one standard deviation below the five-year average of 15x. A discount has been applied due to the aforementioned concern regarding the increasing average age of the oil palm trees. Key risks highlighted include potential declines in CPO prices and losses from its joint venture palm refinery.