News  TSH Resources (TSH) has entered into a Share Sale Agreement to acquire 70% stake in

Rinukut Sdn. Bhd. (RSB) for RM18.6m. Note that RSB owns a 60% stake in Rinukut Plantations Sdn. Bhd. (RPSB) which owns 5,000 ha of palm oil plantation landbank in Gunung Rara/Kalabakan Sabah. Within this 5,000 ha of landbank, 1,279 ha has been planted with another 2,720 ha available for future planting.

 Note that the deal is a Related Party Transaction (RPT) as the ultimate owner of RSB is Datuk Kelvin Tan (TSH Chairman). The deal is expected to complete in 2Q15 and TSH effective stake in RPSB should be 42% (60% * 70%) post the completion.

Comments  We are neutral on the news as its short term impact to earnings is likely to be only around RM1.0m or less than 1% of TSH base earnings.

 Effective EV/ha valuation for the deal works out to be RM11,100 per ha. Although the deal is regarded as RPT, we think the price is fair as its EV/ha of RM11,000 is close to the EV/ha of RM11,200 for recent offer made by TSH to acquire landbank at Sungai Kalabakan in Dec-2013 (which is a Non-RPT deal).

 Balance sheet impact is minimal as we expect its net gearing to increase slightly to 0.78x (from 0.77x currently).

Outlook  We believe that current low CPO prices are likely to limit TSH to only 10% in FY14.

Forecast  We maintain our FY14E CNP of RM157m. FY15E CNP estimate is still pending our new CPO price forecast which should be out next week.

Rating Maintain MARKET PERFORM

 Due to TSH’s high FFB growth with 3-year CAGR FFB growth of 19%, we are likely to keep the recommendation on this stock as MARKET PERFORM. However, there is a downside bias to our TP due to the potential earnings trimming for FY15E.

Valuation  Our TP is UNDER REVIEW. Last TP is RM2.27 based on 15.4x Fwd. PE to FY15E EPS of 14.7 sen.

Risks to Our Call  Lower-than-expected CPO prices or FFB growth.

Source: Kenanga