Journey to Wealth
TSH Resources - Young trees to fuel growth BUY
- Maintain BUY on TSH Resources Bhd, with a higher fair value of RM2.66/share versus RM2.60/share previously. Our fair value is based on a PE of 15x on FY13F EPS.
- Our recent visit to TSH's oil palm estates in Kalimantan affirms our positive stance on the group.
- We forecast the group's net profit to improve 11% each to RM132mil in FY12F and RM146mil in FY13F underpinned by expansions in FFB production.
- After a robust 43% climb in FFB production growth in FY11, we reckon that TSH would be able to maintain a double-digit percentage increase in palm oil production going forward, albeit at a slower pace.
- We estimate FFB production growth of 17% for FY12F and 15% for FY13F underpinned by increases in mature areas.
- As the volume of TSH's palm oil production in Indonesia increases, production costs per tonne are expected to decline. Although the plantation operations in Malaysia are efficient, group production costs are high due to the Indonesian operations.
- We estimate operating cost of the Indonesia division at RM1,415/tonne in 1QFY12. In comparison, production cost of the operations in Malaysia was about RM1,161/tonne.
- The age profile of TSH's oil palm trees is attractive. TSH has a large proportion of young trees in Indonesia. About 56% of the trees in Indonesia are three years old and less, while another 30% of the trees are between four and six years old.
- A small 5% of the oil palm trees in Indonesia are between seven and 15 years old, while the balance 9% of the trees are aged more than 16 years.
- We expect insignificant earnings contributions from the wood and cocoa divisions. Cocoa division is envisaged to break even in FY12F against an EBITDA of RM24.4mil in FY11.
- Losses in the wood division are expected to widen from RM0.6mil in FY11 to RM3mil in FY12F due to poor demand from Europe. Ekowood Bhd, which carries out operations in the wood division, is currently trading at 0.3x of its book value of RM0.75/share.
Source: AmeSecurities
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
