Investment Highlights

• We maintain HOLD on TSH Resources with a lower fair value of RM1.07/share vs. RM1.10/share previously. Our fair value for TSH is based on a FY24F PE of 15x, which is the 5-year average for small-cap planters. We attach a 3- star ESG rating to TSH.

• We have trimmed TSH’s FY24F net profit by 3% to account for lower FFB production. We are now assuming that TSH’s FFB output would be flat in FY24F (FY23: -2%) compared to a 5% growth previously. We think that TSH’s FY24F FFB production would be affected by the disposal of 3,000ha to 4,000ha of landbank in North Kalimantan and lagged impact of dry weather in Kalimantan in 3Q2023.

• Recall that TSH proposed to sell about 13,900ha of land in North Kalimantan to an Indonesian government agency for RM731mil in FY22. Most of the disposals were completed in FY22 and FY23 except for the last parcel of 3,000ha to 4,000ha, which will be completed in FY24F.

• We estimate TSH’s ex-mill cost of production in Indonesia to be flat at RM1,900/tonne in FY24F. Although fertiliser costs are envisaged to decline by 10% to 15% in FY24F, this would be offset by higher wages and the absence of growth in the volume of production.

• The cost of wages is envisaged to rise by 3% to 5% in FY24F in line with the hike in minimum wage in Indonesia. Minimum wages are expected to increase by 3% in North Kalimantan, 5% in East Kalimantan and 3% in West Sumatra in 2024F.

• TSH plans to carry out new plantings of 800ha to 1,000ha of oil palm trees in Indonesia in FY24F. TSH has already received approval from RSPO for the new plantings. We estimate that TSH has a plantable landbank of 8,000ha to 10,000ha in Indonesia.

• TSH’s capex is envisaged to increase to RM110mil in FY24F from RM70mil in FY23E. This is mainly due to new plantings of oil palm and the construction of a RM20mil biogas plant in Central Kalimantan.

• TSH is currently trading at a FY24F PE of 14x, which is higher than its 2-year average of 12x.

Source: AmInvest Research - 29 Jan 2024