News    TSH Resources (“TSH”) announced that it has entered into a Share Sale Agreement (“SSA”) to acquire Casa Logistic Sdn. Bhd. (“CLSB”) for RM12.5m. Note that CLSB has entered into another SSA to purchase 90% of PT Perkebunan Sentawar Membangun (“PTPSM”).

We gather that PTPSM holds 5,084 ha of greenfield land in East Kalimantan with a plantation permit (“Izin Usaha Perkebunan”).

The rationale for the purchase is that it would enable TSH to further increase its oil palm plantation areas in Indonesia.

Comments    Effective valuation of the land works out to be RM2732/ha. This is fair in our view. In Sep-2012, there is one plantation land deal in East Kalimantan, which was transacted at RM1754/ha. Due to scarcity of good plantation landbank in Kalimantan, we believe that TSH premium valuation is justified.

We are positive on the announcement. With this deal, TSH’s long term FFB growth of at least 15% yearly should sustain more than 5 years as this acquisition effectively raised its plantation landbank by 5% to 103,927 ha (based on our estimate).

We expect earnings contribution only from FY17E onwards when the oil palm trees mature.

Balance sheet impact is minimal as we expect net gearing to increase only slightly from 1.08x to 1.10x.

Outlook   Exceptionally high FFB growth of 26% to 558,005 mt in FY13E should allow TSH to register 13% earnings growth.

Forecast   We are still reviewing our CPO prices for 2014 with small potential upside. Our last FY13E-FY14E core earnings are RM104m-RM160m.

Rating UNDER REVIEW

Our call/TP is under review with a slight upside bias.

Our previous CALL/TP is OUTPERFORM/RM2.44.

Valuation    Our last valuation of RM2.44 was based on CY14E Fwd. PE of 12.9x and EPS of  18.9 sen. 

Risks   Lower than expected CPO prices.

Source: Kenanga