TSH Resources (TSH) joined us in hitting the road in
Singapore recently to meet 9 institutional funds. FFB production growth was
spectacular last year, surging by more than 40% y-o-y, with its young
Indonesian estates being the key growth driver.
Management is looking to quicken the pace of new planting over the next few
years 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 its
trees below peak. Maintain BUY, with FV of RM2.65.
Planted area reaches
30,521 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 equity
instead 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 rise
by as much as 1 ppt from the current 4+%. With this ratio now having trended
lower to 0.71x, the company is looking to plant 4k ha of palms and 1k ha of
rubber annually, which translate
into a 10%-13% growth in oil
palm planted areas over the next 3 years. The company will continue to enlarge
its 94,003 ha landbank in Indonesia, of which
only 27.8% is planted, before
good Kalimantan land becomes scarce and expensive.
Age profile primed
for growth spurt. With over 21.8k ha planted since 2006, 75.0% of TSH’s
trees are below peak production age, making it the 5th most
favourable tree age profile within our
18-stock plantation universe. Of
the total area planted,
47.5% has immature trees
- the highest within our Malaysian plantation coverage. Indonesia represented
only 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 to
an overall FFB production growth of 43.2%.
Becoming less Malaysian. Indonesia will continue to be
TSH’s key growth engine given its young
tree profile (87.7% of trees below peak) while Sabah should see declining
production (0.5% of trees below peak). Management forecasts the firm’s FFB production
will grow by 21.4% in 2012 while we expect a weaker but still commendable growth
of 18.2%. We gather from management that as the heavy rainfall during the first
two months of the year had affected harvesting, 1Q production should thus be
relatively weak, although it may bounce back in 2Q.
Source: OSK188
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