Earnings recovery ahead for TSH Resources

  • Business
  • Thursday, 09 May 2019

for the nine-month period ended Sept 30, 2018 (9M18), the plantation company posted a core PBT of RM81.9mil.

KUALA LUMPUR: PublicInvest Research sees an earnings recovery for TSH Resources in 2019 after a dismal performance last year.

It said on Thursday the recovery would be underpinned by i) continuous double-digit fresh fruit bunches (FFB) production growth, ii) stronger electricity sales from the biomass and biogas plants, iii) steady effective tax rate and iv) solid cocoa butter business. 

“Nevertheless, we lower our FY19 earnings forecasts by 13% for the plantation segment as we see significant increase in cost pressures this year. Our FY20-21 earnings forecast remain unchanged. 

“Our TP is revised up slightly from 98 sen to RM1.01, however, after rolling-over our valuations to FY20 with an unchanged PE multiple of 20 times. We maintain our Neutral call. 1QFY19 results are expected to be released on May 27,” it said.

PublicInvest Research says TSH has a total planted area of 42,077ha with 85% of the landbank in Indonesia. 

The plantation age profile remains young, averaging at 9.2 years old and which has contributed to the company registering FFB production growth of 18%-21% p.a. for the last two years. 

Banking on its young age profile, the company registered one of the highest FFB yields in the industry, standing at 25.3mt/ha. 

As for the bio-integration business, the research house says it is back in full production. 

The bio-integration business consists of the operations of biomass and biogas power plants in Sabah. It owns and operates a 14MW/H biomass power plant and a 3 MW/H biogas power plant in Sabah. 

Other than for its internal consumption, the power generated is sold to Sabah Electricity. Due to some disruptions; it did not run at full capacity last year. This power generation segment is expected to contribute at least 18% to the research house’s annual earnings forecasts. 

TSH also runs a cocoa processing plant in Klang and mainly exports to the US, European Union and Asia. 

PublicInvest Research said driven by the higher sales volume of cocoa products coupled with better cocoa product prices, the TSH’s sales grew by 7% YoY to RM136.9mil while cocoa earnings jumped three-fold to RM31.6mil, making up the bulk of group earnings for FY18.  

“We expect to see another solid performance this year,” it said.

As for palm oil, the research house expects to see another double-digit FFB production growth this year albeit at a slower rate of 10%-15%. 

CPO cost of production is also expected to inch up by 5% to about RM1,700/mt on the back of higher fertiliser cost (+8% YoY) and an increased minimum wage policy in Sabah (+19.5% YoY) and Indonesia. 

There will be an additional mature area of 4,000ha-5,000ha this year, bringing the total mature area to more than 38,000ha. Its allocated capex is around RM100mil to RM120mil for the replanting of 500ha and also the maintenance expense for the 8,236ha immature area.
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