News  TSH Resources (TSH) has proposed to undertake a 1-for-2 bonus issue. This should effectively increase its number of shares to around 1.35b shares (from 0.90b shares currently).

Comments  We are positive on this corporate exercise as it rewards shareholders and also improves the stock's liquidity.

Pending Bursa and shareholders’ approvals, the bonus issue is expected to be completed by 4Q14. Post-bonus, the share base will increase by 50% to 1.35b shares. Hence, the current share price will also be adjusted from RM3.57 to RM2.38, while our TP will be adjusted accordingly from RM4.00 to RM2.67.

Outlook  Excluding the bonus issue, its FFB growth is the strongest among planters under our coverage as we expect 3-year Fwd CAGR of 18% (against peers about 10%). Hence, it is likely to outperform its peers in terms of earnings growth.

Forecast  We maintain our core earnings forecast for both FY14E (RM169m) and FY15E (RM198m).

Rating Maintain OUTPERFORM

We continue to like TSH for to its young trees age profile of about 6.5 years and superior FFB growth of 18% in FY14E (against peers’ average of 10%).

Valuation  Maintain our TP of RM4.00 (Ex-Bonus RM2.67) based on FY15E Fwd. PE of 18x. Our Fwd. PE of 18x is unchanged and based on +1.0SD valuation to reflect TSH’s good cost management and superior FFB growth potential.

Risks to Our Call   Lower-than-expected CPO prices.

Lower-than-expected FFB growth.

Source: Kenanga