WILL TSH RESOURCES RISE UP TO REACH RM2.08?

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Date: 25/08/2021

Source	:	PUBLIC BANK
Stock	:	TSH		Price Target	:	1.75	|	Price Call	:	BUY
				Last Price	:	1.08	|	Upside/Downside	:	+0.67 (62.04%)

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Riding on the strong CPO price performance and a steep FFB production growth from Indonesia, TSH saw its 1HFY21 earnings doubling to RM78.4m. The results beat ours and the street expectations, making up 73% and 71% of full-year estimates, respectively. No dividend was declared for the quarter. In view of the stronger-than-expected results, we revise up our FY21-23 earnings forecasts by 15%-38% after raising our profit margin and FFB production growth to 19% (previously 7%). Consequently, our TP also increases from RM1.46 to 

RM1.75 based on 24x FY22 EPS. 

Maintain Outperform call.

 

• 2QFY21 revenue (QoQ: +55%, YoY: +46%). The impressive topline of RM307m was mainly boosted by stronger plantation sales despite weaker contributions from non-core businesses. Plantation revenue jumped 84% YoY to RM335m, driven by stronger both CPO prices and higher production. Average CPO prices advanced from RM2,099/mt to RM3,441/mt, a massive growth of 64% YoY. FFB production rose 16.5% YoY to 255,151mt, led by stronger production in Indonesia (+21.1%) despite weaker production seen in Sabah (-15.3%). Non-core sales tumbled 38.1% YoY to RM17.7m, mainly dragged by weaker cocoa sales.

• Core earnings surged to RM45m. it would have been a record breaking quarter if not because of the additional Indonesian export levy and duty on CPO amounting to RM72.2m. the Group recorded core earnings of RM45m, bolstered by stronger plantation earnings as CPO and palm kernel prices rallied. Plantation EBIT margin jumped from 10.6% to 28.2%. On the other hand, earnings contribution from other businesses registered a loss of RM1.6m, as cocoa business was negatively affected by the Covid-19 pandemic due to lower consumption of cocoa butter globally. Meanwhile, earnings contribution from its 21.9%-owned Innoprise Plantations doubled to RM4.5m.

• Outlook guidance. In contrast to the earlier estimates of 7-11%, it is understood that the Group is now targeting higher FFB production growth of 18-20%. The steep FFB production growth achieved in Indonesia was surprising with the management attributing it to the i) young age profile, ii) consistent manuring programme and iii) high productivity backed by sufficient workforce. Meanwhile, we understand that the Group has a 2- month forward selling practice for its CPO production. Only a small replanting area was achieved during the quarter. Based on our sensitivity analysis, every RM100/mt change in CPO price would translate to 7-10% increase in the Group’s bottomline.

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Source: PublicInvest Research - 25 Aug 2021

Latest Target Price for TSH Resources -RM 1.46 

by Public Bank 

Date: 07 July 2021

Stock : TSH |
Source : PUBLIC BANK

Price Target : 1.46 |

Price Call : BUY

Last Price : 1.04

Subject : Divesting Plantation Landbank in Sabah

TSH Resources is disposing of its two pieces of plantation land bank totaling 3,007ha together with a 40mt/hour palm oil mill in Sabah for a total cash consideration of RM248m. The group is expected to recognise one-off gain of RM104.3m in the 1QFY22. We deem the offer is attractive as it is valued based on EV of RM82,474/ha or P/B of 1.48x. Based on our calculation, we think it is an earnings accretive deal for the group as it could potentially bump up its earnings by as much as RM8m after taking into the consideration of significant interest savings despite the loss of income from the CPO production.
Pending the completion of the proposal disposal, we retain our Outperform call with an unchanged 

TP of RM1.46  based on 24x FY22 EPS.




Salient details of the proposed disposal.

The two pieces of leasehold plantation land bank for divestment are located in Kinabatangan, Sabah. The tenure for the first piece has a balance of 56 years while the second piece has a balance of 75 years. Both estates are adjacent to each other and the weighted average age of the estate’s palm trees is approximately 18 years. Approximately 74% of the planted area is more than 21 years of age and is due for replanting. The total FFB production from these two plantations stood at 50,388mt in FY20. Meanwhile, the 20-year-old palm oil mill is located at the Ladang Ong Yah Ho and it mainly processes the FFB produced around the vicinity. The buyer of the plantation assets is an unlisted company, Sharikat Keratong S/B, led by a Chang family.
Improving gearing level. Management guided that the proceeds of RM248m from the proposed disposal will be used to pare down its borrowings. As of end-2020, it is sitting in a net debt position of RM1.1bn and a net gearing of 0.71x. Upon completion, the proceeds would be utilised to pay off debt, thereby, reducing its net gearing to 0.53x. It can have an annual interest savings of up to RM11.6m if it tends to settle the relatively high interest cost terms loans. In addition, the Group would be able to save capex for land clearing and replanting in the coming years as a significant portion of the estates are due for replanting. The improved gearing will also provide capacity to raise additional funding to accelerate development of its remaining unplanted plantation lands in Indonesia.
Reducing group’s FFB by 5.9%. Upon the completion of the proposed disposal, TSH will see a reduction of FFB production by about 5.9% to 855,786mt (using FY20 numbers as the base). Meanwhile, TSH’s planted area in Sabah will nearly halve to 3,169ha while group planted area will reduce by almost 10% from 31,456ha to 28,449ha.
Lucrative return of investments. All three plantation assets have a combined audited net book value of RM167.1m and the total cost investment involved is RM61.3m. In our view, we think the offer, which is valued based on EV of RM82,474/ha or P/B of 1.48x, is deemed attractive. The group is expected to recognise one-off gain of RM104.3m in the 1QFY22

Source: PublicInvest Research - 7 Jul 2021

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SEE_RESEARCH

Noted as one of the
MAIN CATALYST OF THIS SPECIAL GAIN;
WILL DRIVE TSH INTO an uptrend mode;
with panic & frenzy buying orders 

The group is expected to recognise one-off gain of 

RM104.3 millions 

in the 1QFY22

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TSH /9059

SEE_RESEARCH 

WAIT for strong rally  VERY SOON

 First target  ------  RM 1.50

Mid term target --RM 2.00