TSH’s earnings to improve in 3QFY20

KUCHING: TSH Resouces Bhd’s (TSH) earnings growth is expected to improve in the third quarter of the financial year 2020 (3QFY20), driven by higher crude palm oil (CPO) prices, analysts observed.

Following the announcement of its first half of FY20 (1HFY20), analysts at the research arm of Kenanga Investment Bank Bhd (Kenanga Research) deemed its results as “within expectations”, with its core net profit (CNP) rising 53 per cent on the back of higher average CPO price (up 23 per cent), and higher fresh fruit bunches (FFB) output (up five per cent).

As a result, it noted that its plantation earnings before interest and tax (EBIT) margin expanded (9.2ppt) to 18.6 per cent, leading to a 137 per cent increase in plantation segment profit.

On a quarterly basis, it said TSH’s second quarter of FY20 (2QFY20) CNP fell 57 per cent as lower average CPO price (down 19 per cent) overshadowed higher FFB output (up five per cent). Plantation EBIT margin contracted ( down 14.5ppt) to 10.7 per cent, while segmental plantation profit fell (65 per cent).

For the quarters ahead, Kenanga Research believed that its earnings could improve in 3QFY20.

“Premised on higher CPO prices (quarter to date 3QFY20: up 17 per cent q-o-q, we expect sequential improvement in 3QFY20 earnings.

“However, 4QFY20 earnings could suffer as we expect rising inventory as a result of peak production period and normalisation of demand (as inventory replenishment efforts from countries like India and China have been completed) to exert downward pressure on CPO price,” it opined.

All in, Kenanga Research maintained its ‘market perform’ rating on the stock.

It explained: “Given our view that CPO price is likely to come under pressure in anticipation of rising inventory in the coming months, we believe reward-torisk favours the latter at this juncture and our tactical ‘market perform’ rating is appropriate.”