TSH Resources - Hurdles in Pontian takeover

News    It was reported in The Edge Financial Daily that TSH had only received a 8.2% acceptance rate so far from the shareholders of Pontian.

For the deal to go through, TSH and the other joint offerors need a marginal acceptance of 30.28%, and hence it will still need another 22% acceptance rate (after the above).

Recall that TSH and the other joint offerors already own 19.72% of Pontian.

Comments     We believe that the deal is unlikely to go through, judging from the Bursa announcement that the “Final Closing Date” for the offer is 10-Sep (today).

After the closing date, TSH could either offer higher prices for Pontian shares (above RM90) or leave the offer lapsed. In our view, TSH is unlikely to offer better prices as this will push its net gearing above 0.85x.

Outlook      Despite this negative news flow, the company’s healthy fundamentals with a strong FY12-13E FFB growth rate of 12%-30% is unaffected.

The 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.

Hence, we believe that any share price weakness will be good opportunity to accumulate TSH shares at more attractive levels.

Forecast               Our FY12-13E earnings forecasts of RM112m-RM149m are unchanged as we did not factor in anycontributions from Pontian previously.

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     Maintaining our TP of RM2.85 based on FY13E PER of 15.8x (+1SD@5-year mean, implying a premium to its peers which only command +0.5SD for the reasons given above).

Risks      A sustained drop in CPO prices.

Source: Kenanga