Friday 29 Mar 2024
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TSH Resources Bhd
(July 8, RM2.24)
Initiate with buy with a target price (TP) of RM2.92:
We initiate coverage on TSH with a “buy” call with a TP of RM2.92 based on its five-year historical price-earnings ratio (PER) of 18 times over financial year 2015 (FY15) earnings per share (EPS) estimate at 16.2 sen.

We like the stock given its efficiency as a pure planter with long-term earnings growth potential supported by strong growth in fresh fruit bunch (FFB) production (FY14: 18%; three-year compound annual growth rate [CAGR]: 24%), younger average tree age profile of eight years which provides a visible revenue and earnings growth catalyst, superior FFB yield of 25.6 tonnes per hectare and a high percentage of immature to young mature land over planted area of 70%.

TSH has an average tree age profile of eight years, whereby 69% are immature to young mature trees, from which we anticipate potential higher FFB yield as they reach their peak. We have projected its FFB production to grow at a five-year CAGR of 21% for the period of FY10 to FY15 to 716,000 tonnes and 844,000 tonnes in FY16.

Some 38% of total planted area is immature land making TSH one with the highest percentage of immature land hectarage among its peers.

This may provide visible revenue and earnings growth catalyst to the group moving forward.

Despite its relatively younger trees, it has one of the highest FFB yields among its peers at an average FFB yield of 25.6 tonnes per hectare.

TSH has been consistently profitable despite the challenges faced. It recorded a five-year earnings CAGR of 24% from FY09 to FY14.

With potential earnings growth from the above-mentioned catalysts, we project its FY15/16 earnings of RM138.9million and RM154.7million respectively. — BIMB Securities Research, July 8

TSH_FD_9July2015_Theedgemarkets

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

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