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Published: Tuesday May 22, 2012 MYT 8:35:00 AM

HDBSVR maintains Buy on TSH, RM2.75 target price

KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR) is maintaining its Buy call on TSH Resources Bhd and a target price of RM2.75.

The research house said on Tuesday that any near-term weakness in TSH's share price is a good opportunity to collect.

“The forecast 19% CAGR of its fresh fruit bunches (FFB) output (three-year) is attractive and premised on rising FFB output at maturing Indonesian estates,” it said.

HDBSVR said TSH reported weak first quarter (Q1, 2012) earnings of RM15.1mil (down 42% on-quarter, down 37% on-year) due to lower FFB yield at its Sabah estates.

In addition, it booked RM1.7mil in unrealised forex loss (on US dollar borrowings for expansion in Indonesia) and RM2.9mil net derivatives losses (CPO forward sales). Sequentially, operating profit fell 23% (-22% on-year) to RM24.4mil, yielding 10.7% operating margin (vs 10.9% in 4Q11).

“Although 1Q12 FFB volume is only 20% of our FY12 forecast, we expect TSH's FFB yields in Sabah to recover in 2H12. Contribution from the group's Indonesian estates should also improve in 2H12 with new maturities. We also expect new plantings to double to 3k ha in this year compared to FY11.

“The group's unrealised losses on derivatives may be reversed in 2Q12 given the recent drop in CPO prices. TSH's balance sheet as at end Mar12 remained healthy with 85% net gearing (3.3x interest coverage ratio),” said HDBSVR.


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