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.
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