We are initiating coverage on TSH Resources (TSH) with an OUTPERFORM call and a Target Price of RM2.50 based on 15.8x forward PER on its FY12E EPS of 15.90 sen. We like TSH for 1) its steady FY12E-FY13E FFB growth of 19%-25%, 2) its position as the most efficient planters with a FFB yield of 24.9mt/ha and 3) its long term growth is secured as 69% of its total plantation land is still unplanted. We estimate that its FY12-13E core net profit will grow 10%-26% to RM131m-RM165m. TSH's key earnings catalysts are 1) better than expected CPO prices and 2) higher than expected FFB growths. The immediate term risks are a sustained drop in CPO prices and higher than expected fertiliser and labour costs.

In the high FFB growth stage.  TSH's  FFB  production  is  poised  to explode with a 19% growth rate in FY12E to 477,100 mt. This will be followed by another 25% FFB growth in FY13E to 597,300 mt. Such high production growths in FFB are rare  among plantation companies, which typically will see only FFB growth rates of 1% to 15% in FY12E-FY13E. Most efficient planter with FFB yield of 24.9mt/ha.  This is even higher than other famous efficient planters such as IOI (23.7mt/ha), IJM Plantation (23.7mt/ha) and United Plantation (23.0mt/ha). The exceptionally high FFB yield even at the young average trees age of 6.2 years old is due to better yields achieved at both its Sabah and Indonesian estates.

One of the few planters with a sizeable landbank of more than 95,000 ha. With 98,453 ha of total gross landbank, TSH is the 7^th  largest plantation company in Malaysia  by gross landbank area, behind Tradewinds Plantation (141,465 ha)  and Kulim (165,332 ha). With only 31% of its total plantation land having been planted so far, we expect TSH to be able to sustain its yearly planting of 4,000 ha for at least another 10 years.

Expects FY12-13E earnings to grow 10%-26% to RM131mRM165m.  The key earnings driver will  be FY12E-FY13E FFB growths of 19%-25% as the Indonesian estates mature. We have assumed CPO prices of RM3,200 for both FY12E and FY13E. In the longer term, we believe TSH can sustain a 5-year net profit CAGR of 15% to RM238m by FY16E, with earnings growth underpinned by its FFB CAGR growth of 16%.

Risks would be CPO prices and regulations. For every RM100 decline in CPO prices, we expect its FY12E-FY13E earnings to be affected by 5.8%-5.4%. Higher fertiliser and labour costs will impact its margin. All these risks should be mitigated by its explosive FFB growth ahead, which will keep its CPO cost per mt manageable at RM1,000-RM1,100 per mt. Initiating coverage on TSH for its  explosive FFB growth and FFB yield efficiency.  OUTPERFORM on TSH with TP of RM2.50. We have applied a 15.8x Fwd. PER (+1.0SD above TSH's 5-year average forward PER) on our FY12E EPS of 15.90 sen. The +1.0SD is at a premium to other planters whom we value at +0.5SD over average Fwd. PER. We believe the premium is justified given TSH's higher FFB yield efficiency, superior FFB growth and younger trees profile of 6.2 years old.

Source: Kenanga