Friday 29 Mar 2024
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TSH Resources Bhd
(Feb 6, RM2.32)
Maintain neutral with an unchanged target price of RM2.05.
We came away from TSH Resources meeting last Thursday with a better picture on its outlook this year, with the management confident that it will be able to maintain its double-digit growth though at a slower pace.

The planted area in Sabah and Indonesia stand at 5,727ha and 3,721ha respectively. The management guided that about 3,000ha to 4,000ha will turn mature this year, which will increase the total planted area to about 45,000ha.

The management expects slower production growth of 12% compared with 19% last year mainly due to the impact of tree stress after enjoying bumper harvest over the last two years. It also foresees its production to be under pressure in the second half of this year.

Cost of production (ex-mill) for Sabah and Indonesia was RM897 per million tonnes and RM1,183 per million tonnes respectively.

The management foresees a slight increase this year due to an approximate 5% to 6% increase in fertilisers and labour costs, driven higher by the minimum wage policy.

After experiencing negative margins in the second quarter financial year 2014 (2QFY14) and 3QFY14 attributed to a sharp decrease in crude plam oil prices amid stiffer competition from its Indonesian counterparts, the management thinks that its 50%-owned refinery business in Sabah will register positive earnings this year as the refining margin has become steadier.

The plant is currently running at a 60% utilisation rate.

The management has allocated RM120 million to RM150 million for this year’s capital expenditure (capex). It will also fork out RM50 million to build a new mill with a capacity of 45 million tonnes per hour in West Sumatra. The remaining capex will go to the new planting of 3,000ha to 4,000ha this year.

Meanwhile, it also expects to see the results of Wakuba, which produces high quality oil palm ramets with a high fresh fruit bunch yield to be completed by the second half of 2016 and gradually applied on all new plantings going forward. — Public Bank Investment Bank, Feb 6

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This article first appeared in The Edge Financial Daily, on February 9, 2015.

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