Kuching: TSH Resources Bhd (TSH) is expected to perform well in its second half (2H) thanks to stronger crude palm oil (CPO) prices and recovery of fresh fruit bunch (FFB) production in Kalimantan.
As TSH mainly sells its CPO production at spot prices, the research arm of Public Investment Bank Bhd (Publicinvest Research) highlights that it should have the capability to be able to fully capture the current bullish CPO prices.
Based on Publicinvest Research’s sensitivity analysis, for every RM100 per metric tonne increase in CPO price, TSH’s pre-tax profit is expected to increase by another RM7 million.
“Assuming the current bullish CPO price trend remains for the coming months, we expect to see earnings surprise in 2H. Hence we believe TSH is likely to achieve our full year financial year 2016 (FY16) forecast,” said the research arm.
In FFB production, the research arm noted that while the group’s FFB production had fell 15 per cent year over year (YoY), its management expects the decline to recover by 5 per cent in the coming months.
“Kalimantan production has bottomed out while Sumatra and Sabah might still be a drag until April 2017,”added the research arm.
Additional TSH management plan also involve conservation of cash in the coming years to reduce the groups net gearing level from 0.89 fold to 0.70 fold.
“The cash conservation will be done through lowering its capital expenditure (xapex) allocation for new planting activities as it currently owns sizeable and young plantation land,” explained the research arm.
While there are currently no plans for any aggressive new planting over the next three years, the research arm has predicted that the group will likely continue enjoying a young age profile coupled with double digit production growth.
While it is expected that production costs to be slightly higher due to the lag effect of El Nino, the research arm has stated that they believe production cost would be softer compared to the 1H, led by recovery of production and higher palm kernel prices.
As such, the research arm has decided to reiterate their ‘outperform’ call on TSH with an unchanged target price of RM2.12.