- Maintain HOLD on TSH Resources with a higher fair value of RM2.95/share based on a FY14F PE of 23x.

- Normalising numbers, we believe that TSH’s 9MFY13 core net profit would have been within our expectations.

- Included in TSH’s 3QFY13 results were an unrealised forex loss of RM43.7mil in respect of its US$102.1mil borrowings and gain on disposal of Pontian United Plantation Bhd of RM85.3mil.

- TSH’s effective tax rate was also low in 9MFY13 as the gain on the disposal of Pontian was not taxable. In addition, TSH enjoyed tax incentives in respect of the pioneer and Bionexus status for its biomass projects in 9MFY13.

- Effective tax rate was 3% in 9MFY13 versus 17.6% in 9MFY12. In 3QFY13, income tax expense was a positive RM6.9mil due to the recognition of deferred tax asset.

- Operationally, TSH’s gross profit improved by 9.6% YoY to RM211.1mil in 9MFY13 underpinned by an 8.2% fall in the cost of sales.

- The YoY decline in the cost of sales in 9MFY13 was due to lower fertiliser costs. We believe that fertiliser costs eased by 5% YoY in 9MFY13.

- Revenue of the palm and biointegration division shrank by 8.3% YoY to RM651.3mil in 9MFY13 as the fall in CPO price was partly cushioned by a robust expansion in palm oil production.

- We estimate that average CPO price realised slid 21.7% from RM2,807/tonne in 9MFY12 to RM2,197/tonne in 9MFY13. CPO production rose 18.6% YoY in 9MFY13 on the back of a recovery in FFB yields.

- The group’s FFB output in Indonesia is estimated to have risen by 38.9% YoY in 9MFY13. Indonesia accounted for roughly 74% of TSH’s FFB production in 9MFY13.

- Net gearing stood at 88.5% as at end-Sept 2013 compared with 104.3% as at end-Dec 2012. Net gearing is expected to ease further to 54% after the receipt of the RM195.8mil cash from the disposal of Pontian.

- We believe that TSH had only received the disposal proceeds of Pontian in October 2013. 

Source: AmeSecurities