Stock Name: TSH
Company Name: TSH RESOURCES BHD
Company Name: TSH RESOURCES BHD
| Research House: OSK | Price Call: BUY | Target Price: 2.65 |
TSH Resources (TSH) joined us in hitting the road inSingapore recently to meet 9 institutional funds. FFB production growth wasspectacular last year, surging by more than 40% y-o-y, with its youngIndonesian estates being the key growth driver.Management is looking to quicken the pace of new planting over the next fewyears and also shed light on why the company is further expanding in Kalimantan.TSH continues to have one of the best tree age profiles, with 75.0% of itstrees below peak. Maintain BUY, with FV of RM2.65.
Planted area reaches30,521 ha. TSH planted on 2,584 ha in 2011, which was slower than the aggressive 3.1k to 5.2k ha it covered annually between 2006 and 2009. Planting has been slow over the past two years as the company endeavoured to keep its net gearing(calculated based on total equityinstead of shareholders' equity) below the 0.8x needed to maintain its AA- credit rating from MARC. A drop to an A rating would see the company's borrowing cost riseby as much as 1 ppt from the current 4+%. With this ratio now having trendedlower to 0.71x, the company is looking to plant 4k ha of palms and 1k ha ofrubber annually, which translate into a 10%-13% growth in oilpalm planted areas over the next 3 years. The company will continue to enlargeits 94,003 ha landbank in Indonesia, of which only 27.8% is planted, beforegood Kalimantan land becomes scarce and expensive.
Age profile primedfor growth spurt. With over 21.8k ha planted since 2006, 75.0% of TSH'strees are below peak production age, making it the 5th mostfavourable tree age profile within our18-stock plantation universe. Of the total area planted,47.5% has immature trees - the highest within our Malaysian plantation coverage. Indonesia representedonly 42.2% of the company's planted area at the turn of the millennium but this has risen to 85.5%. The archipelago nation was the driver last year, with FFB production surging 59.4% compared toan overall FFB production growth of 43.2%.
Becoming less Malaysian. Indonesia will continue to beTSH's key growth engine given its youngtree profile (87.7% of trees below peak) while Sabah should see decliningproduction (0.5% of trees below peak). Management forecasts the firm's FFB productionwill grow by 21.4% in 2012 while we expect a weaker but still commendable growthof 18.2%. We gather from management that as the heavy rainfall during the firsttwo months of the year had affected harvesting, 1Q production should thus berelatively weak, although it may bounce back in 2Q.
Source: OSK188
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