- Maintain BUY on TSH Resources Bhd, with a higher fair value
of RM2.75/share. Our fair value is based on an FY13F PE of 18x and excludes
potential earnings contributions from the acquisition of Pontian Group.
- Earnings contribution from Pontian would depend on the level
of acceptances for TSH’s general offer for the shares. The corporate exercise
is expected to be completed by 3QFY12.
- Our PE assumption of 18x implies one standard deviation above
TSH’s seven-year mean PE of 13x. In the past seven years, TSH’s PE band ranged
from a low of 4.5x to a high of 27.9x.
- In line with the earnings trend recorded by other
plantation companies, TSH’s 1HFY12 results were below our expectations and
consensus estimates.
- This was due to weaker CPO prices and low cropping patterns
in the group’s oil palm estates in Malaysia and Kalimantan. Additionally, we
estimate that production costs were higher by 15% to 20% YoY in 1HFY12.
- As a result, TSH’s revenue declined 13.1% YoY to RM506.4mil
in 1HFY12, while gross profit shrank 12.9% from RM150.9mil in 1HFY11 to
RM131.4mil in 1HFY12. Net profit fell by a sharper 50.5% YoY in 1HFY12 as other
operating income declined due to a swing from forex gain to a loss.
- We reckon that TSH’s FFB production in Sabah fell 23% YoY
in 1HFY12, while FFB output in Indonesia expanded 7.8%. As a result, group FFB
production inched down 3.4% YoY in 1HFY12.
- We estimate that the average CPO price realised softened 4.6%
from RM3,000/tonne in 1HFY11 to RM2,864/tonne in 1HFY12.
- On a positive note, TSH’s net profit only eased 2.8% QoQ to
RM14.6mil in 2QFY12. Group revenue climbed 22.7% to RM279mil in 2QFY12 on a
quarterly basis due to improved CPO prices and palm oil production.
- Average CPO price realised strengthened from RM2,725/tonne
in 1QFY12 to RM3,002/tonne in 2QFY12.
- Although TSH’s FFB production expanded 2.3% QoQ in 2QFY12,
plantation EBIT margin declined from 15.1% to 13.1% as operating costs per
tonne in Indonesia were higher than in Malaysia. We estimate that Indonesia accounts
for 65% to 70% of group FFB production.
Source: AmeSecurities
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