-  Maintain HOLD on TSH Resources Bhd with an unchanged fair value of RM2.35/share. Our fair value is based on an FY15F PE of 25x. We have reduced TSH’s FY15F EPS by 10% to account for lower plantation operating margin.

 -  TSH is currently trading at an FY15F PE of 24.0x, which is in line with Genting Plantations’ PE of 24.9x and IJM Plantations’ PE of 26.2x.

 -  We forecast TSH’s FFB production to increase by 10% in FY15F underpinned by a rise in mature areas of 3,500ha in Indonesia. The group’s oil palm trees are expected to take a breather in FY15F after strong output growth of 27% in FY13 and 26% in FY14F.

 -  In addition, FFB yields in Indonesia may be affected by the lagged impact of the dry weather, which hit Kalimantan and parts of Sumatra in October 2014.

 -  In contrast to other planters, most of TSH’s FFB production is in Indonesia. Indonesia accounts for about 75% to 80% of group FFB production while the balance 20% to 25% is from Sabah.

 -  We understand that Kalimantan faced heavy rain late last year. Since then, the rain has tapered off. Although the weather is wet in Sabah currently, it is not a problem yet.

 -  Production costs (ex-mill) are envisaged to range from RM1,200/tonne to RM1,300/tonne in Sabah while in Indonesia, production costs are estimated at RM1,400/tonne to RM1,500/tonne in FY15F.

 -  We believe that fertiliser prices would be slightly higher in FY15F while minimum wage in Indonesia is expected to rise between 7% and 10%.

 -  New plantings are estimated at 3,000ha to 4,000ha in FY15F versus 3,000ha in FY14F. New plantings may reach the top-end of the range in FY15F if TSH commences works at the Kalabakan land in Sabah, which was purchased late last year.

 -  We reckon that share of profits in the TSH/Wilmar refinery would improve marginally in FY15F. Although unexciting, we understand that refining margins have stabilised. Recall that the refinery recorded losses in 2QFY14 and 3QFY14 as CPO prices tumbled.

Source: AmeSecurities