TSH Resources Bhd
(Oct 11, RM3.16)
Maintain buy at RM2.93 with target price of RM3.70: A re-rating opportunity for TSH as the proposed one-for-one bonus issue may help to improve its liquidity and reduce the liquidity discount on the stock over time. In addition, the proposed bonus issue will reflect management's commitment to consistently deliver strong earnings growth beyond the next three years, when its fresh fruit bunch (FFB) production is already poised to deliver a three-year compound annual growth rate (CAGR) of 20%. We reiterate our 'buy' call on TSH with an unchanged target price of RM3.70 based on 15 times FY13 price-earnings ratio (PER).
Management proposes a one-for-one bonus issue of up to 417 million shares of 50 sen each. The RM208 million bonus issue would be distributed from TSH's share premium, asset revaluation reserve and retained earnings. The entitlement date has yet to be determined as the proposal is pending approvals from the authorities and shareholders. The bonus issue is expected to be completed by end-2011. Our earnings per share and price target are unchanged for now.
We think TSH has been under-appreciated in the past due to the liquidity discount on its share price with an average trading volume of 309,000 per day. The bonus issue will raise its share base by 100%, from 208 million to an enlarged share capital of'' 409 milion to 417 million (depending on Treasury shares). The doubled number of shares would in turn attract new investors who were previously discouraged by its relatively low liquidity.
We continue to rate TSH a 'buy' for its robust 20% FFB production CAGR over the next three years. Having the strongest production growth among the Malaysian plantation companies under our coverage would cushion TSH's earnings against an anticipated correction in crude palm oil price. (Note that we recently downgraded our CPO price forecast for 2012 from RM3,000 per tonne to RM2,600 per tonne amid a weak global economic outlook and a strong FFB production outlook.) TSH remains undervalued, trading at 11.8 times 2013 PER and earned value per planted hectare of RM46,693. ' Maybank IB Research, Oct 11
This article appeared in The Edge Financial Daily, Ocotber 12, 2011.
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