KUALA LUMPUR (June 19): Kenanga Research has upgraded its call on TSH Resources Bhd to “outperform”, from “market perform” at 81.5 sen, citing value emerging after the recent selldown on the stock.

“At current price, TSH Resources is traded at 0.71 times PBV (price-to-book-value) (circa 11% discount to peers’ average) and even on PER (price-earnings ratio), TSH is traded at merely 15.4 times PER (circa 23% discount to peers’ average), reflecting -1.75SD (standard deviation) from mean despite being one of the more profitable upstream planters, having recorded decent profits (versus losses suffered by its peers) during depressed CPO (crude palm oil) price environment,” Kenanga Research said in a note today.

Despite the upgrade on the recommendation, Kenanga Research has maintained its target price at 95 sen for TSH Resources.

This suggests a potential upside of 17% compared to yesterday’s closing price of 81.5 sen.

Today, TSH Resources' share price rose two sen or 2.45% to 83.5 sen, after some 262,800 shares exchanged hands. Year to date, the stock has shed 46% from RM1.54 on Dec 31, 2019.

On the earnings outlook, the research house anticipated a sequential fall in TSH Resources' core earnings for the second quarter year ending June 30, 2020 (2QFY20), amid lower CPO price (-16% quarter-on-quarter [q-o-q], but partly cushioned by higher fresh fruit bunches output (+6% to 11% q-o-q).

Hence, the research house expects the company to generate core earnings of between RM14 million to RM16 million in 2QFY20. This brings the company’s first half for FY20 (1HFY20) earnings to circa 60% to 64% of the research house's full-year earnings estimates.

To recap, last month, TSH Resources posted a significant fall in its first quarter ended March 31, 2020 (1QFY20) result, hit mainly by foreign exchange losses and higher taxes.

Its net profit for 1QFY20 plunged 83% to RM2.25 million — the weakest since 4QFY16 when it swung to losses — from RM13.54 million for 1QFY19. This is despite a 24% jump in revenue to RM257.39 million from RM207.59 million, amid higher CPO selling price.

In view of the lower CPO prices assumption of between RM2,300 to RM2,400 per metric tonne (MT) (versus RM2,500 MT estimation previously), Kenanga Research has slashed its earnings forecast by 18% for FY20 and 11% for FY21.

It is now anticipating the company to generate an annual net profit of RM63 million for FY20 and RM73 million for FY21. This translates to an earnings per share of 4.58 sen for FY20 and 5.31 sen for FY21.

Kenanga said the risks to its call are adverse dry weather impact on TSH Resources’ production in Indonesia and logistic disruption due to Covid-19 outbreak.