Investment Highlights

• We maintain BUY on TSH Resources with an unchanged fair value of RM1.35/share. Our fair value for TSH is based on a FY21F PE of 22x.
   
• We forecast TSH’s FFB production to increase by 5.0% in FY21F after a 2.0% rise in FY20E (disregarding the sale of estates to KLK). We think that Indonesia would continue to drive the group’s FFB output growth in FY21F.
   
• TSH’s Indonesia unit is expected to account for almost 80% to 90% of group FFB production in FY21F. Malaysia is expected to make up the balance 10% to 20%.
   
• TSH has about 23,000ha of mature areas in Indonesia compared with 4,600ha in Malaysia. Average age of TSH’s oil palm trees in Indonesia is eight years old vs. 14 years in Malaysia.
   
• We have assumed TSH’s FFB yield to be 23.0 tonnes/ha in FY21F. We think that TSH’s mature areas will increase by 2,000ha in Indonesia in FY21F (disregarding the sale of estates to Kuala Lumpur Kepong).
   
• We believe that TSH’s net gearing would decline in FY21F after the completion of the RM517.6mil (including assumption of loans) disposal of 10,816ha of oil palm estates in Central Kalimantan to Kuala Lumpur Kepong (KLK).
   
• We estimate TSH’s net gearing to be 67.1% as at endFY21F vs. 85.3% as at end-FY20E (FY19: 90.8%), assuming 50% of the group’s RM513.1bil borrowings are repaid during the year.
   
• Currently without the sale of the estates to KLK, we forecast TSH’s net gearing to be 79.4% as at end-FY21F. We have not accounted for the impact of the sale of the estates to KLK in our earnings forecast for TSH yet.
   
• Capex is expected to be relatively unchanged at RM100mil in FY21F. TSH’s FY21F capex is anticipated to be mainly in respect of maintenance of palm oil mills and infrastructure at the oil palm estates. TSH’s free cash flows are estimated to remain positive at 2.7 sen per share in FY21F compared with 2.6 sen per share in FY20E.

Source: AmInvest Research - 26 Jan 2021