TSH Resources Bhd (Nov 9, RM3.20)
Maintain buy with target price RM3.70: Our visit to TSH’s Sabah operations last week reaffirmed our confidence that TSH will deliver our estimated robust 20% growth in fresh fruit bunches (FFB) production, and we see further upside from its new commercial planting of the Wakuba clones.
TSH also demonstrated strong sustainability with its effective estate management and support from its ancillary incomes. We reiterate our “buy” call on TSH with an unchanged target price (TP) of RM3.70 based on 15 times FY13 price earnings-ratio (PER).
The preliminary results from its trial planting of Wakuba clones are encouraging, producing 13.9 tonnes per hectare year-to-date in its third year. TSH obtained approvals to plant Wakuba in Indonesia recently and will begin large-scale planting in 2012. We estimate that 2015 to 2020 FFB production could be enhanced gradually by 0.7% to 7.2%. Further upside in FFB production could emanate from stronger yields due to first generation soil in Kalimantan and accelerated planting plans.
TSH replaced buffalos with “mechanical buffalos” to speed up collection and transport of FFB in its Sabah estates and increased land harvested per worker from 1.2ha per day to 1.7 to 2ha per day. TSH plans to introduce mechanical buffalos in its Indonesia estates soon. In addition, TSH utilises GPS to monitor estate operations and fine-tune management practices.
The government may raise the renewable energy (RE) tariff from 21.25 sen per kWh to 29 sen per kWh soon. If approved, we estimate a 3% increase in earnings before interest and taxes (Ebit) from the tariff hike. TSH also expects RM6 million to RM7 million in Ebit contribution per year from selling carbon credits (CERs). Management guided that Eko Pulp and Paper Sdn Bhd will commission in 1H12 but expects minor earnings contribution for now.
We expect a reduction in liquidity discount soon, as TSH’s proposed one-for-one bonus issue will go ex after the EGM to be held on Nov 21. TSH’s 2013 PER of 12.7 times is relatively cheap for its young palm age profile of 6.6 years average and an expected 20% growth in FFB. We have yet to factor in the RE tariff hike and CERs sales into our earnings estimates which could provide further upside to earnings. Our TP of RM3.70 offers 18% upside from the current price. — Maybank IB Research, Nov 9
This article appeared in The Edge Financial Daily, November 10, 2011.
Maintain buy with target price RM3.70: Our visit to TSH’s Sabah operations last week reaffirmed our confidence that TSH will deliver our estimated robust 20% growth in fresh fruit bunches (FFB) production, and we see further upside from its new commercial planting of the Wakuba clones.
TSH also demonstrated strong sustainability with its effective estate management and support from its ancillary incomes. We reiterate our “buy” call on TSH with an unchanged target price (TP) of RM3.70 based on 15 times FY13 price earnings-ratio (PER).
The preliminary results from its trial planting of Wakuba clones are encouraging, producing 13.9 tonnes per hectare year-to-date in its third year. TSH obtained approvals to plant Wakuba in Indonesia recently and will begin large-scale planting in 2012. We estimate that 2015 to 2020 FFB production could be enhanced gradually by 0.7% to 7.2%. Further upside in FFB production could emanate from stronger yields due to first generation soil in Kalimantan and accelerated planting plans.
TSH replaced buffalos with “mechanical buffalos” to speed up collection and transport of FFB in its Sabah estates and increased land harvested per worker from 1.2ha per day to 1.7 to 2ha per day. TSH plans to introduce mechanical buffalos in its Indonesia estates soon. In addition, TSH utilises GPS to monitor estate operations and fine-tune management practices.
The government may raise the renewable energy (RE) tariff from 21.25 sen per kWh to 29 sen per kWh soon. If approved, we estimate a 3% increase in earnings before interest and taxes (Ebit) from the tariff hike. TSH also expects RM6 million to RM7 million in Ebit contribution per year from selling carbon credits (CERs). Management guided that Eko Pulp and Paper Sdn Bhd will commission in 1H12 but expects minor earnings contribution for now.
We expect a reduction in liquidity discount soon, as TSH’s proposed one-for-one bonus issue will go ex after the EGM to be held on Nov 21. TSH’s 2013 PER of 12.7 times is relatively cheap for its young palm age profile of 6.6 years average and an expected 20% growth in FFB. We have yet to factor in the RE tariff hike and CERs sales into our earnings estimates which could provide further upside to earnings. Our TP of RM3.70 offers 18% upside from the current price. — Maybank IB Research, Nov 9
This article appeared in The Edge Financial Daily, November 10, 2011.
