MD: TSH deserves better PE ratio


BY Hanim Adnan

IT is no surprise that TSH Resources Bhd group managing director Datuk Kelvin Tan is less than happy about the price-earnings (PE) ratio the company's shares are commanding. 

At yesterday's closing price of RM4.42, the stock's PE multiple is about 10 times, compared with its peers Kwantas Corp Bhd, which has a PE ratio of 15 times; QL Resources Bhd, 12.2 times; and Kim Loong Resources Bhd, 14.8 times. 

Even plantation companies like KL Kepong Bhd, IOI Corp Bhd and Golden Hope Plantations Bhd have PE ratios of 17.2, 13.9 and 14.6 times respectively. 

Datuk Kelvin Tan

To say the least, Tan has every reason to feel disheartened. 

For the past 10 years, TSH has without fail registered annual growth of about 25%. For the financial year ended Dec 31, 2003, the group registered a pre-tax profit of RM49.7mil, up on RM30.2mil a year earlier. Group turnover also surged to RM401.6mil from RM272.9mil previously. 

Its shareholders' funds grew to RM264.3mil in fiscal 2003 (2002: RM229.8mil) and it boasts a gearing of only 0.31. 

And the company is rated A+ by Malaysian Rating Corp Bhd, which indicates a strong financial standing based on its recent venture into the power business. 

“Based on our good track record in maintaining a strong balance sheet and quality sustainable earnings, I don't think TSH deserves such a low PE. It is much lower than the average 14.6 times for companies that have operations similar to ours,'' he told a media briefing on Wednesday. 

Tan also expressed disappointment that the group's efforts to diversify to become an industrialised resource group were not reflected in its PE ratio. 

In recent years, the low profile group has invested in several potentially high income generating operations. It has invested in a RM45mil palm bio-integrated complex – the world's first – in Kunak, Sabah. The complex could process oil palm fresh fruit bunches into biomass power, and palm oil mill effluent into pulp and paper products, as well as bio-gas energy. 

It comprises three plants, namely a renewable energy 14-MW biomass power plant, a palm-based pulp and paper products plant, and a biogas energy plant. 

The biomass power plant is scheduled for commissioning in July, and the pulp and paper products plant by end-2006. 

Another 8-MW biomass power plant using wood waste is expected to be commissioned by the end of next year. The plant is to be sited at the group subsidiary Ekowood Sdn Bhd's wood flooring factory. 

TSH also plans to start operating a 60-tonne an hour oil mill in West Sumatra via a joint venture with a co-founder of the PT Astra Group of Indonesia by year's end. The total investment is between RM24mil and RM26mil. 

Tan said its 14-MW biomass power plant could potentially generate an annual profit of RM8mil to RM10mil from the sale of power to Sabah Electricity Sdn Bhd under a renewable power purchase agreement (REPA). 

Another potential revenue generator is the wood-based 8-MW biomass plant in Ipoh. 

“TSH Group is negotiating another REPA with Tenaga for the supply of energy from this biomass plant. Hopefully, if we can sell at the right price, it will generate another RM6mil in profit annually, starting from early 2006,” Tan added. 

Even the new palm oil mill in Indonesia would start contributing to group earnings next year, he said, adding that it was too early to disclose the figures. 

An analyst said TSH was fast making its mark as a small power producer in Sabah. 

“This energy business (with SESB) will provide stable earnings for the group, especially when Sabah is experiencing power shortage,” he added.  

 Stock Watch On TSH Stock Watch On TSH-R Stock Watch On TSH-WA

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