TSH: Plantation Company Delivers Strong Earnings Beat on Improved Margins
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM1.43 (+5.1%) |
| Last Traded | RM1.36 |
| Recommendation | HOLD |
A recent research report indicates that the company’s third-quarter (3QFY25) results surpassed expectations, primarily driven by lower depreciation and stronger-than-anticipated margins. Core net profit for the quarter more than doubled year-on-year to RM52.0 million, on the back of a 13.7% increase in revenue.
Performance Review
Cumulatively, for the first nine months of fiscal year 2025 (9MFY25), core net profit surged by 88.3% year-on-year to RM157.6 million. This performance represents 87% of the investment bank’s full-year forecast and 98% of consensus estimates. Revenue for 9MFY25 grew 11.1% year-on-year to RM807.8 million.
The Palm Product segment was a significant contributor, with operating profit increasing 58.0% year-on-year to RM254.7 million in 9MFY25. This was supported by robust palm oil prices, which saw average crude palm oil (CPO) prices climb 6.0% year-on-year to RM3,876 per tonne, alongside a 3.2% rise in Fresh Fruit Bunch (FFB) production. Palm kernel (PK) prices also surged notably by 45.4% year-on-year to RM3,219 per tonne.
Conversely, the Non-Palm Commodity segment faced challenges, with operating losses widening by 58.7% year-on-year to RM10.4 million in 9MFY25. This was mainly attributed to inventory write-downs within the Wood segment, indicative of slow-moving stock.
Forecast Revisions
Following the strong performance and improved margins, the investment bank has revised its earnings forecasts for FY25-FY27 upwards by 8.3% to 10.3%. These adjustments reflect the improved margin outlook and anticipated lower depreciation expenses.
Future Outlook
Management maintains a cautiously optimistic view on CPO prices, anticipating them to remain above RM4,000 per tonne in the near term. This positive outlook is underpinned by robust export demand and steady domestic consumption. However, potential volatility in CPO prices could arise from factors such as increased fourth-quarter production, the U.S. biofuel mandate, geopolitical tensions, tariffs, and currency and energy trends.
In the long term, management remains committed to a positive CPO price outlook and aims to expand planted hectarage to enhance future productivity and shareholder value. Looking further ahead into 2026, the bank adopts a more cautious view on CPO prices. This caution stems from expectations of ample South American soybean supply and the potential resumption of U.S.-China trade, which could increase soybean oil trades and potentially cap CPO demand. Nevertheless, strong biofuel demand is expected to provide some support, though weather and trade policy shifts could impact price stability.
Rating and Target Price
In light of the revised forecasts and outlook, the investment bank has upgraded its recommendation for the stock from “Sell” to “Hold”. The target price has been revised upwards to RM1.43 (previously RM1.30), based on a CY26 Price-to-Earnings Ratio (PER) of 12x, representing a 5.1% increase from the previous target price. The last traded price was RM1.36.
