Investment Highlights

• We maintain HOLD on TSH Resources with an unchanged fair value of RM1.24/share, based on a FY23F PE of 15x, which is the 5-year mean for small cap planters. We ascribe a 3-star ESG rating to TSH.

• TSH’s FY22 core net profit of RM194mil (ex-forex, disposal gains and asset impairments amounting to RM263.5mil in total) was within our forecast and consensus estimates.

• Following the disposal of its oil palm estates in Sabah and Kalimantan, TSH is flushed with cash. Cash reserves rose to RM382mil as at end-FY22 from RM297.2mil as at endFY21 while net gearing declined to 9.3% from 49.5%.

• TSH has declared an FY22 final gross DPS of 2.5 sen, implying a yield of 2.3%. We estimate an FY23F gross DPS of 2 sen, which translates into a yield of 1.9%.

• TSH’s FY22 core net profit rose by 6.5% on the back of higher palm product prices and a lower effective tax rate. TSH’s effective tax rate declined to 5.5% in FY22 from 20.7% in FY21 due to reversal of temporary differences and recognition of deferred tax assets.

• TSH’s plantation EBIT rose to RM302.2mil in FY22 from RM286mil in FY21. Average realised CPO price improved to RM4,100/tonne in FY22 from RM3,570/tonne in FY21. TSH’s FFB production was relatively flat in FY22 as wet weather in Kalimantan affected harvesting.

• TSH’s FY22 plantation earnings could have been stronger if the group had not recorded CPO export tax and levy in Indonesia. These brought down TSH’s revenue by RM225.2mil in FY22 compared with RM228.1mil in FY21.

• The “Others” division (wood flooring, cocoa and biomass activities) recorded a smaller FY22 core loss of RM3.4mil (excluding fair value loss on forest planting expenditureof RM37.2mil) vs. RM12.3mil in FY21. We believe that the improvement in earnings can be attributed to higher demand for wood flooring products.

• TSH is currently trading at a FY23F PE of 13x, which is in line with its 2-year average.

Source: AmInvest Research - 24 Feb 2023