Revenue also declined by 26% to RM250 million from RM337 million in Q1 FY2022. The group attributed the decrease to lower crude palm oil (CPO) and palm kernel (PK) prices.
“Other segments reported losses in Q1 2023 mainly due to low revenue as a result of low demand for wood products and the closure of biomass power plants for maintenance,” said TSH.
Kenanga Investment Bank Bhd analyst Teh Kian Yeong downgraded TSH from “outperform” to “market perform” in a note today.
“TSH’s Q1 FY2023 results disappointed due to its surprisingly low CPO prices achieved, about RM500 below average spot prices,” he said.
Teh noted that this quarter’s net profit also included a disposal gain of RM27.6 million which stemmed from the agreed disposal of 13,898ha of land (only 28% planted) in north-east Kalimantan for RM731 million cash in June 2022.
“The Q1 FY2023 CPO price of RM3,550 per MT (+0.4% quarter-on-quarter, -26% year-on-year) was flattish but RM500 below spot prices for January to March 2023, hence the downswing in earnings,” he said.
Teh expects softer CPO prices in 2023 due to the recovery in supply. However, the threat of El Nino which is looking likely in the second half of the year and recovering demand should provide some firmness in CPO prices moving ahead.
Prior to FY2022, TSH had high borrowings which slowed down planting on land the group already owned.
As of March 31, the group’s net debt has been pared from RM816 million at the end of FY2021 to RM131 million, equivalent to a 7% net gearing.
Teh expects new planting to start in six to twelve month’s time.
Whilst the group’s long-term growth prospect remains attractive, Teh has cut TSH’s FY2023 and FY2024 earnings forecast by 33% and 11% respectively, and revised the target price to RM1.10 from RM1.35 previously.
Meanwhile, MIDF Research has slashed the group’s FY2023 and FY2024 earnings by 9% and 28% respectively, expecting production cost to remain elevated. However, it maintained its “neutral” call and target price of RM1.01.
At 11am, TSH’s share price was down 2.45% or 2.5 sen at RM1.00, giving it a market capitalisation of RM1.37 billion.