KUCHING: TSH Resources Bhd (TSH) is expected by analysts to have a strong recovery in financial year 2017-2019 (FY17-19).
TA Securities Holdings Bhd (TA Securities) expected TSH’s FY17 fresh fruit bunch (FFB) harvest to increase by 18 per cent to 701,000 tonnes due to the recovery from the El-Nino impact.
“FFB production is expected to grow by a whopping 12 per cent and 10 per cent in FY18 and FY19, respectively. The growth in production will substantially come from Indonesia,” it said.
As far as crude palm oil (CPO) price was concerned, TA Securities expected the price to start high in the first quarter of 2018 (1Q18) and trend lower in the second half of 2018 (2H18) when FFB production starts to rise seasonally again in 2H18.
Specifically, the research firm projected CPO price to trade in the range of RM2,800-RM3,300 in 1H and RM2,400-RM2,700 per tonne in 2H.
“This would average the CPO price to RM2,800 per tonne in 2018.”
For FY19, the research firm assumed the average CPO price to remain flat at RM2,800 per tonne to derive at its earnings forecasts.
TA Securities thus expected TSH’s FY17 revenue to surpass RM1 billion while net profit to increase to RM117.6 million (up 29 per cent).
Meanwhile, FY18 and FY19 revenue is anticipated by the research firm to increase further by 11.5 per cent and 5.3 per cent to RM1.19 billion and RM1.25 billion respectively, boosting FY18 and FY19 net profit to RM128.5 million (up 9.3 per cent) and RM132.6 million (up 3.2 per cent), respectively.
TA Securities noted that as far as cost is concerned, the estate cost in Indonesia, stated in terms of per tonne CPO (exclude mills), had declined 30 per cent from FY08 to FY13.
“However, it then increased sequentially in the range of 5.7 per cent to 6.3 per cent from FY14 to FY16,” the research firm said.
“Management guided that the lower yield (due to El-Nino), younger oil palm trees and weaker ringgit have resulted in higher unit cost.”
TA Securities expected CPO production cost (ex-mill) to be slightly higher and in the range of RM1,400-RM1,500 per tonne for FY17-FY19 as increase in young mature areas will require higher maintenance and overhead costs.
“For Malaysia, the production cost (excluding mill costs and taxes) has been stable in the range of RM840-RM950 per tonne in FY08-FY15.”
The research firm expected the new planting cost to be around RM18,000-RM20,000 per hectare (ha) for FY17-FY19.
As for the minimum wage hike in Indonesia, TA Securities opined that it will only have a marginal impact on earnings.
“Note that most of TSH’s estate workers are paid higher than the minimum wage of RM650-750 per month in Indonesia.
“TSH has a salary mechanism where a worker is paid a fixed piece rate for each unit of production rather than a basic remuneration.
“According to management, piece rate mechanism rewards workers and incentive efficiency gains.”
According to TA Securities, as a pure upstream player, TSH’s earnings are highly sensitive to changes in CPO price.
The research firm’s sensitivity analysis indicates a RM100 change in CPO price will impact TSH’s bottom-line by 13 per cent.
“This is expected given that TSH is a pure upstream player.”