PETALING JAYA: Hong Leong Investment Bank (HLIB) Research believes that TSH Resources Bhd
’s balance sheet will remain solid moving forward.
This is based on the expected proceeds from the disposal of the plantation company’s remaining 5,000ha of land in Indonesia for an estimated sum of about RM270mil, and its low capital-expenditure requirements, said the research house.
HLIB Research noted TSH has returned to a net cash position since the third quarter of 2023 (3Q23), thanks to strong crude palm oil (CPO) prices in 2022 and land disposal in FY22.
However, the research house has maintained its forecast on TSH for now, pending completion of the sale of the remaining 5,000ha of land targeted for mid-2024.
It has also kept a “hold” call on the stock with an unchanged target price of RM1.07.
During a recent meeting with TSH’s management, HLIB Research said it gathered that the group’s fresh fruit bunch (FFB) output growth will remain flattish, while CPO production costs will be maintained at current levels.
“Given its sharply improved balance sheet, TSH is looking to resume new planting activity and expand its renewable energy efforts into Indonesia,” the research house added.
“While we like TSH for its favourable tree-age profile (average age of 12 years) and improving balance sheet (net cash of 17.1 sen per share as at Sept 30, 2023), further upside is capped by the absence of earnings-growth catalysts.”
Moving into 2024, the group’s FFB production will likely come in marginally lower versus 2023, as lower planted area (depending on timing of the completion of the sale of the 5,000 ha) will be partly mitigated by an additional 300ha-400ha of planted area moving into the maturity bracket.
HLIB Research further noted higher FFB output and lower fertiliser prices brought CPO production costs lower to RM1,900 per tonne for the nine-month period of 2023 from RM2,000 per tonne in the first half of the year.
“Management shared that CPO production costs will likely remain stable for 4Q23.
“While TSH has yet to lock in its fertiliser requirements for 2024 at the time of writing, management believes that fertiliser costs should come in lower versus 2023, and this should at least mitigate higher labour costs in 2024,” HLIB Research said.
Meanwhile, TSH is also expanding its renewable energy efforts into Indonesia, by investing in four to five biogas plants over the next few years.
“We understand that construction of its first biogas plant in Indonesia (with an estimated cost of RM15mil-RM20mil) will take place by 1Q24 and be ready for commissioning one year later,” the research house added.
