Highlights

TSH proposed a bonus issue of up to 451.9m shares on the basis of 1 bonus share for every 2 existing TSH shares.

Post bonus issue exercise, TSH’s total issued shares will be enlarged from 903.8m shares to 1.36bn shares, while its net asset/share will be adjusted from RM1.18 (as at end-2013) to RM0.77m.

The proposed bonus issue is expected to complete by 4Q14.

Pros/Cons

Mildly positive. While bonus issue does not theoretically result in fundamental changes to a company, it does, however, enhance the liquidity and marketability of the shares.

Earnings Forecasts

Maintained.

Risks

• Weaker-than-expected FFB production and OER;
• A sharp increase in production cost; and
• A sharp decline in vegetable oil prices.

Rating

HOLD

Positives - (1) Strong FFB growth; (2) Stable cash flow from alternative power plant; (3) Improving net gearing ratio (post Pontian stake sale and private placement); and (4) Favourable long term outlook of the oil palm business.

Negatives – Unattractive valuations.

Valuation

Latest development aside, while we continue to like TSH for its young tree profile (which in turn leads to high FB output growth), we believe near-term upside is capped by its rich valuations. Maintain SOP-derived TP at RM3.36

Source: Hong Leong Investment Bank Research - 12 Aug 2014