TSH Resource - Secures 20% stake in Pontian

News   TSH announced that it had secured a total of 20.21% stake in its proposed acquisition of Pontian United Plantation (PUPB), making the latter an associate company of TSH. Effectively, TSH has emerged as Pontian’s largest shareholder after raising its stake in Pontian by 12.25% (from 7.96% before the takeover offer).

 We gather that the Proposed Offer to take over Pontian has closed on 14-Sep.

 Recall that on 26-Jun, TSH had announced its plan to take over PUPB at an offer price of RM90 per share to be satisfied by RM45.06 in cash and RM44.94 in TSH shares at RM2.14 per share. This represented 10.9x PER over PUPB’s FY11 earnings. PUPB website stated that it owns 40,000 acre (~16,000 ha) of palm oil plantations with most of its located in Sabah (Kinabatangan and Lahad Datu).

 

Comments   We are positive on the deal as we deem it as EPS accretive. FY13E EPS should improve 3% as the net income increase of 5% to RM158m will surpass the share base dilution of 3% to 845.4m shares. Further benefit can be realised via TSH-Pontian synergy as Pontian’s plantation landbank is located very near to TSH’s landbank in Lahad Datu, Sabah.

 

Outlook  TSH’s fundamentals remain healthy with a strong FY12-13E FFB growth rate of 12%-30%.

 Its long-term outlook remains positive as we believe that TSH can sustain a 5-year FFB CAGR growth of 16% as its Kalimantan estates mature. 

 

Forecast  We have raised our FY13E earnings by 5% to RM158m as earnings from the new associate above will increase by RM11m. However, FY13E EPS is raised by only 3% due to the enlarged share cap (+3% to 845.4m shares).

 FY12E earnings and EPS are maintained at the current juncture as we think the impact should be minimal with TSH likely to equity account Pontian earnings in full in 4Q12.

 Our key assumptions are FY12-13E CPO prices of RM3150-RM3100 and FFB productions of 448k-583k.

 

Rating Maintain OUTPERFORM

 We continue to like TSH for its young age profile of around 6.2 years old, which is the youngest for planters under our coverage.

 

Valuation  We have raised our TP to RM2.95 (from RM2.85) based on an unchanged Forward PER of 15.8x on our higher FY13E EPS of 18.7 sen. Our 15.8x Forward PER is based on +1SD above the 5-year mean of Forward PER Band, implying a premium to its peers which only command a +0.5SD for the reasons given above.

 

Risks  A sustained drop in CPO prices.

Source: Kenanga