KUALA LUMPUR (Dec 12): Hong Leong Investment Bank (HLIB) remains cautious about TSH Resources Bhd, amid concerns over flattish fresh fruit bunch (FFB) output growth, while crude palm oil production cost will be maintained at current levels.

In a note on Monday, the research house maintained its "hold" rating and target price of RM1.07 for the planter that operates in the cultivation, processing and refining of oil palm, based on an unchanged 15 times core earnings per share of 7.1 sen forecast for the financial year ending Dec 31, 2025 (FY2025).

The research house maintained its earnings forecasts for TSH, which are below consensus estimates, pending completion of the group 5,000-hectare (ha) land disposal in Indonesia by mid-2024.

On the back of a sharply improved balance sheet, the research house reported that TSH is looking to resume new planting activities, as the group is left with 30,000ha of unplanted land bank.

Further boosting its operations, HLIB said, TSH will expand its renewable energy efforts into Indonesia by investing in four to five biogas plants over the next few years.

“We understand that the construction of its first biogas plant in Indonesia (with an estimated sum of RM15 million to RM20 million) will take place by the first quarter of FY2024, and ready for commission one year later,” HLIB said.

“Moving into 2024, FFB production will likely come in marginally lower (versus 2023), as lower planted land bank (depending on timing of completion of the 5,000ha land disposal in Indonesia) will be partly mitigated by an additional 300ha to 400ha of planted area moving into the maturity bracket,” HLIB added.

On its outlook, HLIB said TSH’s balance sheet will remain solid, given the expected proceeds from the disposal of the 5,000ha land bank in Indonesia and low capital expenditure requirements.

At the time of writing on Tuesday, shares in TSH were one sen or 1.04% higher at 97 sen each, giving the company a market capitalisation of RM1.34 billion.

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