• We maintain HOLD on TSH Resources with an unchanged fair value of RM1.05/share, based on a FY24F PE of 15x, which is the 5-year average for small-cap planters. We ascribe a 3-star ESG rating to TSH.

• We forecast TSH’s FFB production to grow by 3% in FY23E (1HFY23: -3.6% YoY, FY22: 0.5%). The unexciting harvest in 1HFY23 can be attributed mainly to a 21.2% YoY plunge in FFB output in April. A large number of TSH’s estate workers returned home during the Hari Raya break this year after being restricted in the past 2 years due to Covid.

• TSH’s FFB production is expected to improve in 2HFY23. Although the weather has become drier, rainfall is still sufficient. We believe that 2H will make up for 55%-60% of the full year’s FFB output and 1H to account for 40% to 45%.

• TSH’s ex-mill cost of CPO production in Indonesia is estimated to remain flat at RM2,000/tonne in FY23E. Although the cost of wages is envisaged to increase by 3% to 5%, fertiliser costs are anticipated to decline by 10% in FY23E. Comparing 2HFY23 against 1HFY23, TSH’s ex-mill cost of production per tonne is expected to decline on the back of stronger FFB output.

• TSH would be commencing new plantings of oil palm in Indonesia in FY24F after a lull for several years. New plantings of oil palm are estimated to be 1,200ha to 1,500ha in FY24F compared to only a few hundred hectares in FY23E. The group has plantable reserves of 10,000ha-15,000ha in Indonesia. The cost of new plantings until maturity is RM15,000/ha-RM20,000/ha.

• We forecast a small EBIT of RM5mil for the “Others” (wood flooring and biomass) division in FY23E (1QFY23: RM3.3mil loss). The wood flooring unit is anticipated to swing into the black in 2HFY23 on the back of a recovery in demand from US and Australia.

• We have assumed a capex of RM70mil for TSH in FY23E (FY22: RM61.1mil). The bulk of the capex are expected to be for the construction of biogas plants in Indonesia. TSH plans to build 4 biogas plants, which will cost RM15mil- 20mil each, over the coming few years.

• TSH is currently trading at a fully valued FY24F PE of 15x, above its 2-year average of 12x, but within 5-year average for small cap planters.

Source: AmInvest Research - 7 Aug 2023