TDM Berhad: A Contrarian Play in a Resilient Palm Oil Sector

The palm oil sector has long been a battleground of environmental scrutiny, volatile commodity prices, and operational inefficiencies. Yet, for investors with a contrarian mindset, TDM Berhad (KLSE:TDM) emerges as a compelling case study in strategic reinvention. Amid a recovering industry and a bold shift in asset allocation, the company's recent moves—coupled with a surge in palm oil prices—could catalyze a turnaround that unlocks value for long-term shareholders.

Financial Performance: Growth Amid Margin Pressure

TDM Berhad's FY2024 results reveal a mixed picture. Revenue rose 8.6% year-over-year to RM645.5 million, driven by higher palm oil prices and improved yields in its core plantations. However, net income plummeted by 58% to RM4.84 million, with a profit margin of just 0.7%—a stark decline from 1.9% in FY2023. The drag on profitability stems from elevated operational costs, including maintenance expenses and debt servicing. Earnings per share (EPS) held steady at RM0.007, but the company's stock has underperformed, dropping 7.1% in a week as of August 2025.

Despite these challenges, valuation metrics suggest undervaluation. TDM trades at a price-to-sales (P/S) ratio of 0.47, well below the sector average, and an EV/EBITDA of 8.72, which, while elevated, reflects the company's high leverage. With 4,760 employees, operational efficiency remains a critical focus area.

Debt Burden and Strategic Divestments: A Path to Leverage Reduction

TDM's debt-to-equity ratio of 77.66% (as of Q2 2025) underscores its heavy reliance on debt financing. This leverage, combined with a negative ROE of -1.51% over the trailing twelve months, paints a picture of a company struggling to generate returns for shareholders. However, the recent divestment of its loss-making Indonesian subsidiaries—PT Rafi Kamajaya Abadi and PT Sawit Rezki Abadi—offers a lifeline.

The RM115 million proceeds from this disposal, finalized in July 2025, are expected to reduce debt and free up capital for reinvestment in higher-margin operations. By shedding underperforming assets, TDM is streamlining its portfolio and redirecting resources toward its core Malaysian plantations and healthcare ventures. This move aligns with broader industry trends, as companies increasingly prioritize profitability over geographic expansion.

Palm Oil Price Rally: A Tailwind for Turnaround

The global palm oil market has experienced a sharp rebound in 2025, driven by supply constraints in Southeast Asia and increased demand from biofuel markets. TDM's exposure to this rally could amplify its revenue growth in FY2025, particularly if the company manages to pass on higher input costs to buyers. While the company's current profit margins remain thin, a sustained price uptick could bridge the gap between revenue and net income, provided operational efficiencies are maintained.

Strategic Shifts and Long-Term Potential

TDM's strategic pivot—from a diversified conglomerate to a focused plantation and healthcare player—positions it to capitalize on sector-specific opportunities. The divestment of Indonesian assets not only reduces risk but also simplifies the corporate structure, enabling clearer financial reporting and operational oversight. Additionally, the company's healthcare segment, though currently a smaller contributor, offers diversification and growth potential in an aging population.

For investors, the key question is whether TDM can execute its deleveraging strategy while maintaining operational momentum. The RM115 million infusion provides a buffer, but the company's ability to service its remaining debt will depend on sustained commodity prices and cost discipline.

Investment Thesis: Contrarian Appeal in a Cyclical Sector

TDM Berhad is a high-risk, high-reward proposition. Its current valuation, coupled with a strategic reset, makes it an attractive contrarian play for those who believe in the cyclical recovery of the palm oil sector. While the debt burden and recent losses are concerning, the divestment of unprofitable assets and favorable commodity trends could catalyze a meaningful turnaround.

Long-term investors should monitor two key metrics:
1. Debt reduction progress post-divestment.
2. Margin expansion as palm oil prices stabilize and operational efficiencies take hold.

For now, TDM remains a speculative bet, but one that could pay off handsomely if the company navigates its challenges successfully. In a sector where resilience often trumps short-term volatility, TDM Berhad's strategic clarity and asset rationalization make it a name worth watching.