TSH Has Entered Into 3 Sale and Purchase Agreements With Sharikat Keratong Sdn Bhd (SKSB) to Dispose 2 Parcels of Oil Palm Plantation Landbank (measuring Total Area of 3,008 Ha) and a Palm Oil Mill in Sabah for a Total Consideration of RM248m. The Disposal Values the Abovementioned Landbank at Circa RM76k/ha, Which Is Higher Than IOI’s Recent Proposed Acquisition of NPC’s Palm Oil Estates in Sabah (RM65-66k/ha). One-off Disposal Gain Aside, the Loss of Earnings Arising From the Loss of Productivity From the Proposed Disposal (which Accounted for ~5.6% of TSH’s Total FFB Output in FY20) Will be Partly Mitigated by Interest Cost Savings. Maintain Earnings Forecasts, Sum-of-parts TP of RM1.20, and BUY Rating.

NEWSBREAK

Disposes plantation land in Sabah for RM248m. TSH announced that it has entered into 3 sale and purchase agreements with Sharikat Keratong Sdn Bhd (SKSB) to dispose 2 parcels of oil palm plantation landbank (measuring total area of 3,008 ha) and a palm oil mill in Sabah for a total consideration of RM248m. The disposal is expected to be completed by 1Q 2022. Upon disposal, TSH’s planted landbank in Sabah will be reduced significantly (by ~50%) to ~3,000 ha.

Utilisation of proceeds. TSH intends to utilise the proceeds from disposal to pare down its bank borrowings. Upon disposal, TSH’s net debt and net gearing will decline from RM1.1bn and 0.71x (as at 31 Dec 2021) to RM903m and 0.53x, respectively.

Rationale. According to TSH, the proposed disposal allows TSH to (i) unlock the value of its investment through the disposal (which TSH is expects to register a one-off disposal gain of RM104m), (ii) pare down its borrowings and net gearing significantly, which will then allow TSH to accelerate the development of its remaining unplanted plantation land, and (iii) save significant capex for land clearing and replanting in coming years (as a significant portion of the estates are due for replanting).

HLIB’s VIEW

Valuation wise. Adjusted for the palm oil mill, the disposal values the abovementioned landbank at circa RM76k/ha, which is higher than IOI’s recent proposed acquisition of NPC’s palm oil estates in Sabah (RM65-66k/ha).

Financial impact. One-off disposal gain aside, the loss of earnings arising from the loss of productivity from the proposed disposal (which accounted for ~5.6% of TSH’s total FFB output in FY20) will be partly mitigated by interest cost savings.

Forecast. Maintain for now, pending completion of the disposal. In any case, we consider the disposal gain as non-core.

Maintain BUY with unchanged TP of RM1.20. Maintain BUY rating with sum-of-parts TP of RM1.20 (see Figure #1). At RM0.99, TSH is trading at FY21-22 P/E of 10.3-14.4x.

Source: Hong Leong Investment Bank Research - 7 Jul 2021