- Maintain BUY on TSH Resources Bhd, with an unchanged fair value of RM2.40/share.

- We anticipate a stronger growth in FFB production of 16% in FY13F compared with a soft 6% in FY12. After a blistering 43% expansion in FFB output in FY11, the oil palm trees were affected by stress in FY12.

- Apart from improved FFB yields, the increase in FFB production is envisaged to be underpinned by an estimated increase in mature areas of 2,500ha in FY13F compared with 2,181ha in FY12.

- Like its plantation peers, TSH’s production cost per tonne is expected to remain stable or lower in FY13F. This is due to a small decline in fertiliser costs and larger volume of palm oil production.

- The group’s production cost per tonne was RM933 in Sabah and RM1,190 in Indonesia in FY12.

- In the longer-term, TSH’s profit growth is anticipated to be driven by its young oil palm trees in Indonesia. Currently, the group has 13,796ha of mature and 15,833ha of immature areas in the country.

- Out of the total planted area, about 35% comprises oil palm trees between four and six years old. Another 5% of the trees are aged from seven to 15 years old.

- The wood and cocoa divisions are not expected to contribute significantly to bottom line. We reckon that the two divisions would record small losses of RM2mil to RM3mil each in FY13F.

- Net gearing is forecast to edge down from 104.4% in FY12 to 96.7% in FY13F on the back of improved operating cash flows and lower capex.

- We forecast a capex of RM155mil in FY13F compared with RM225mil in FY12 as TSH delays the construction of two palm oil mills in Indonesia.

- New plantings in Indonesia are estimated between 3,000ha and 5,000ha in FY13F versus roughly 4,000ha last year. Planting cost until maturity is expected to range from RM15,000/ha to RM20,000/ha.

Source: AmeSecurities