TSH earnings to be supported by steady crude palm oil prices

TA Research said the company was cautiously optimistic about its 2024 financial performance.

PETALING JAYA: TSH Resources Bhd’s prospects remain promising, supported by steady crude palm oil (CPO) prices this year.

The plantation company – whose core net profit rose to RM22.7mil for the first quarter ended March 31, 2024 (1Q24) from RM3.6mil in 1Q23 – expects CPO prices to hold at current levels of RM3,500 to RM4,000.

This is on softer expectations of soybean crop production, it said.

Citing TSH management, TA Research said the company was cautiously optimistic about its 2024 financial performance, with CPO prices expected to be sustained at current levels due to the floods in southern Brazil.

The floods had tempered expectations for a strong soybean crop production.

“We anticipate that the movement of palm oil prices in the coming months will be influenced by both palm oil production in key producing countries (Malaysia and Indonesia) and weather patterns in the primary soybean-growing regions of Brazil and Argentina,” the brokerage said.

TA Research upgraded its call on TSH to a “buy” from a “sell” to reflect the increased upside potential and more promising outlook.

It also raised its target price for the counter to RM1.37, from RM1.14 previously, based on 18 times price-earnings ratio, after rolling forward the valuation base year to 2025.

Meanwhile, Kenanga Research maintained its “outperform” call on TSH, with an unchanged target price of RM1.30 based on 0.8 times price-to-book value.

The brokerage said TSH’s earnings were likely to remain firm over 2024-2025 on relatively steady CPO prices while production cost eases.

“CPO prices are expected to stay range bound, between RM3,500 and RM4,000 per tonne over 2024-2025.

“This is as global edible oil demand is expected to grow at 3% to 4% year-on-year, while the supply outlook may struggle to match.

“Thus, inventory is expected to stay flat or even dip slightly in 2024 and possibly into mid-2025,” Kenanga Research said.

“Input costs such as fertiliser and fuel have been easing since mid-2022 but could be bottoming of late.

“However, palm kernel prices could be picking up, helping to reduce CPO cost pressures than a year ago,” it added.

Kenanga Research said TSH would likely plant 8,000 to 10,000ha or expand its planted oil palm area by 20% to 25% over the next two to three years.

Hong Leong Investment Bank (HLIB) Research reiterated its “hold” call on TSH, with an unchanged target price of RM1.07.

“While we like TSH for its favourable age profile (average age of around 13 years) and improving balance sheet (net gearing of 0.01 times as at end-March 2024), further upside is capped by the absence of an earnings growth catalyst,” the brokerage explained.

It noted TSH was cautiously optimistic on its 2024 performance, which would be driven by stable CPO prices.

MIDF Research, which has maintained its “neutral” stance on TSH, has kept its target price for the counter at RM1.18.

“While TSH operates primarily as a pure upstream player with a strong correlation to CPO price movements, its share price does not necessarily reflect significant fluctuations.

“This is unless there are notable developments capable of influencing CPO prices above the RM4,500-per-tonne resistance level,” it explained.