News    TSH Resources (“TSH”) announced that the Group is proposing a 2.5% private placement exercise which will issue up to 20.86m new shares. Post the exercise, TSH’s share base will increase to 855.22m shares. The Company expects the proposal to be completed in 3QCY13.

We gather that the rationale for TSH to raise such equity capital is to meet its working capital requirements without incurring additional interest costs as compared to bank borrowings.

Comments    We are neutral on the news as the maximum potential dilution on FY14E EPS is only 1.2% assuming that the maximum 10% discount is applied to the latest 5-day VWAP of RM2.41. While FY14E net income may increase by 1.2% to RM173m, its share base will expand more by 2.5%. As a result, our FY14E EPS may be trimmed by 1.2% to 19.94 sen and ex-private placement Target Price will be RM2.57 (currently RM2.60).

Net gearing is expected to improve to 0.93x from the current 1.04x.

Outlook   Short-term outlook should remain positive as we expect its 2Q13 FFB growth to exceed 30% YoY which should cushion its earnings against any weakness in CPO prices.

Long-term outlook remains bright as 77% of TSH’s palm oil trees are still below 7 years old with higher yield going forward. Hence, we believe FFB growth of more than 18% can be sustained in the next 3 years.

Forecast   Maintain FY13E-FY14E core earnings forecasts of RM104m-RM171m. Our key assumptions are FY13EFY14E CPO prices of RM2500-RM2700 per mt.

Rating   Maintain OUTPERFORM

Valuation    Maintain TP of RM2.60 based on unchanged 12.9x Fwd.

PE on CY14E EPS of 20.2 sen.

Risks   Lower than expected CPO prices.

Lower than expected FFB production.

Source: Kenanga