Impact from MCO unlikely to be significant to TSH Resources

  • Analyst Reports
  • Thursday, 09 Apr 2020

KUALA LUMPUR: TSH RESOURCES BHD's earnings are expected to remain largely intact despite the three-week suspension in Sabah operations as it will still be able to harvest its crop, and fresh fruit bunch growth for the company is driven largely by its Indonesian estates.

According to RHB research, the government's three-week movement control order (MCO) will not be significatn as FFB fruits can be harvested despite being slightly overripe.

"As harvesting is done every 10-18 days, a three-week suspension means one harvesting round is not done.

"Although overripe fruits give rise to higher free fatty acid content – giving marginally lower prices at the mill – there is still value to be had, as the fruits can still be sold. Fertiliser application can also catch up after the 3-week period is over," it said.

The research house said TSH management is confident the overall impact of this lockdown to FFB output will not be significant as only 10% of its planted areas are being affected.

However, should the lockdown be extended, the company could lose more rounds of harvesting, leading to greater impact.

Meanwhile, RHB believes it will be difficult to lock down TSH's Indonesian estates in the event of a breakout there as enforcement will be near impossible owing to the vast areas of the estates.

The group's JV refinery with Wilmar International is currently not operating.

TSH has a 2020 FFB growth forecast of 8% to 12% with management saying it is too early to review its guidance at present.

RHB has also maintained its forecasts with a buy call and target price of 75 sen.

"We believe valuations look attractive now, given the recent share price retracement," it said.
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