Shares in TSH Resources had done quite well in 2011 — gaining almost 48% (including dividends) based on the current price of RM2.05 — and far outperforming the benchmark FBM KLCI’s 0.8% gain. We attribute this to a number of factors, including strong double-digit production growth and higher selling prices of crude palm oil (CPO).
While CPO prices have come off their high, which were recorded at the start of 2011, we remain sanguine on TSH’s longer-term growth prospects — which will be underpinned by rising fresh fruit bunch (FFB) production from maturing acreage in Indonesia.
Recall that the company started acquiring plantation land in Indonesia back in 2005 and has been undertaking planting activities since then. Output growth kicked into high gear last year as more of these young trees began to bear fruits. Production will continue to expand going forward.
At the same time, new planting activities are expected to continue for the foreseeable future. TSH still has vast unplanted landbank in Indonesia, acquired in several parcels over the past few years. Its oil palm plantation landbank totals about 99,341ha currently, of which less than 30% has been planted.
Valuations remain decent. Based on our earnings forecast, the stock is trading at forward P/E multiples of roughly 13 times. Having said that, we suspect TSH’s share price may consolidate over the next few months, after chalking up gains through much of 2011. Nevertheless, we believe there remains good upside potential for the stock over a slightly longer-term investment horizon.
FFB output growth estimated at 40% for 2011
As mentioned above, FFB production from TSH’s oil palm plantations in Indonesia kicked into high gear last year as the young trees entered production age. Some 29% of total planted trees are now between four and seven years old, up from 19% in 2010.
Total FFB output was up 47.9% to 298,405 tonnes in the first nine months of 2011 from the previous corresponding period. Of this total, output from estates in Indonesia accounted for slightly less than two-thirds with the balance coming from plantations in Sabah. Going forward, output from the former will gradually account for a higher percentage of total output.
FFB output in 4Q11 is expected to fall back after peaking in 2Q-3Q11. Still, we estimate production growth to average at more than 40% for 2011. The double-digit pace of growth will continue over the next few years, albeit at a lower rate after taking into account the growing base, based on the age profile of TSH’s oil palm plantations.
Some 45% of the current planted areas will start producing over the next three years while 29% of them are now between four and seven years old and will gradually enter their prime production period.
By end-2015, we estimate about 48% of the company’s total landbank will be planted, of which mature acreage will account for roughly 62%, up from 46% in 2010. We assume new planting to increase at roughly 4,000ha-5,000ha per annum going forward. Over the same period, total FFB output is projected to double our estimated output in 2011.
TSH also purchases FFB from external parties to be processed at its three palm oil mills in Sabah for comparatively low margins. As its own FFB output grows and accounts for a greater percentage of total FFB processed, we expect overall margins to widen and further boost the company’s earnings.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
While CPO prices have come off their high, which were recorded at the start of 2011, we remain sanguine on TSH’s longer-term growth prospects — which will be underpinned by rising fresh fruit bunch (FFB) production from maturing acreage in Indonesia.
Recall that the company started acquiring plantation land in Indonesia back in 2005 and has been undertaking planting activities since then. Output growth kicked into high gear last year as more of these young trees began to bear fruits. Production will continue to expand going forward.
At the same time, new planting activities are expected to continue for the foreseeable future. TSH still has vast unplanted landbank in Indonesia, acquired in several parcels over the past few years. Its oil palm plantation landbank totals about 99,341ha currently, of which less than 30% has been planted.
Valuations remain decent. Based on our earnings forecast, the stock is trading at forward P/E multiples of roughly 13 times. Having said that, we suspect TSH’s share price may consolidate over the next few months, after chalking up gains through much of 2011. Nevertheless, we believe there remains good upside potential for the stock over a slightly longer-term investment horizon.
FFB output growth estimated at 40% for 2011
As mentioned above, FFB production from TSH’s oil palm plantations in Indonesia kicked into high gear last year as the young trees entered production age. Some 29% of total planted trees are now between four and seven years old, up from 19% in 2010.
Total FFB output was up 47.9% to 298,405 tonnes in the first nine months of 2011 from the previous corresponding period. Of this total, output from estates in Indonesia accounted for slightly less than two-thirds with the balance coming from plantations in Sabah. Going forward, output from the former will gradually account for a higher percentage of total output.
FFB output in 4Q11 is expected to fall back after peaking in 2Q-3Q11. Still, we estimate production growth to average at more than 40% for 2011. The double-digit pace of growth will continue over the next few years, albeit at a lower rate after taking into account the growing base, based on the age profile of TSH’s oil palm plantations.
Some 45% of the current planted areas will start producing over the next three years while 29% of them are now between four and seven years old and will gradually enter their prime production period.
By end-2015, we estimate about 48% of the company’s total landbank will be planted, of which mature acreage will account for roughly 62%, up from 46% in 2010. We assume new planting to increase at roughly 4,000ha-5,000ha per annum going forward. Over the same period, total FFB output is projected to double our estimated output in 2011.
TSH also purchases FFB from external parties to be processed at its three palm oil mills in Sabah for comparatively low margins. As its own FFB output grows and accounts for a greater percentage of total FFB processed, we expect overall margins to widen and further boost the company’s earnings.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
