TSH said in an announcement to Bursa Malaysia yesterday that it would continue to focus on oil palm planting programmes in Indonesia and Malaysia
KUALA LUMPUR: PublicInvest Research sees an improving outlook for plantation company TSH Resources on the back of stronger crude palm oil (CPO) prices and a recovery in fresh fruit bunches (FFB) production this year.
The research house said on Wednesday that after suffering a sharp decline in production last year, it expects to see a FFB production growth of 10%-15% in FY17 as FFB production in Kalimantan has normalised.
“Meanwhile, we expect the group to conserve more cash for the purpose of paring down its high gearing level. We maintain our Outperform view with an unchanged TP of RM2.12,” it said.
PublicInvest Research expects TSH to deliver a strong set of 4Q results next month, bolstered by strong CPO prices and a recovery in FFB production due to peak production period.
“Our sensitivity analysis shows that for every RM100 increase in CPO price, the group’s bottomline is estimated to improve by 6%-7%,” it said.
The research house said Kalimantan is set to produce double-digit growth in FFB production after suffering a decline for two consecutive years.
For Sabah and Sumatra, it is expected to see mild recovery due to the lagged effect of El Nino in 1H 2016.
“Overall, we forecast a healthy FFB growth of 10%-15% for TSH in FY17,” it said.
PublicInvest Research also pointed out TSH’s 21%-owned associate company, Innoprise Plantations, a Sabah-based company, has registered a profit growth of 46.5% in 9M2016.
“It contributes about 5% to our earnings forecasts. Interestingly, Innoprise Plantations’ share price performance is the top performer amongst all the plantation companies. It has surged more than 78% over the last three months,” it said.
As current gross gearing remains high, standing at 92%, the research house thinks management will likely retain more cash to pare down its borrowings.
“For FY17, we understand that about RM70m-80m will be allocated for capex spending on existing immature area. There will be limited spending set aside for new planting and replanting activities.
“As FFB production recovers, CPO production cost per tonne is expected to be lower. Nevertheless, this may be partially offset by higher fertiliser cost due to weaker Ringgit and a strong recovery in crude oil prices. We are projecting an all-in production cost of RM1,500-RM1,600 a tonne.
“The group’s age profile currently stands at 7.5 years old. We forecast that mature area will reach close to 40,000ha by end-2017 with an additional new mature area of 3,000ha,” said PublicInvest Research.
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