Sunday, September 20

Analysts see improved earnings outlook for TSH in 2019

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KUCHING: TSH Resources Bhd (TSH) has been projected by analysts to have better earnings outlook in 2019 on the back of positive palm oil outlook and stronger electricity sales from its bio-integration business.

The research arm of Public Investment Bank Bhd (PublicInvest Research) expected earnings recovery for TSH in financial year 2019 (FY19), following a dismal performance last year.

According to PublicInvest Research, earnings recovery will be led by continuous double-digit fresh fruit bunch (FFB) production growth, stronger electricity sales from the biomass and biogas plants, steady effective tax rate and solid cocoa butter business.

“We expect to see another double-digit FFB production growth this year albeit at a slower rate of 10 per cent-15 per cent,” the research arm said.

“Crude palm oil (CPO) cost of production is also expected to inch up by five per cent to about RM1,700 per metric tonne (mt) on the back of higher fertiliser cost (up eight per cent year on year) and an increased minimum wage policy in Sabah (up 19.5 per cent y-o-y) and Indonesia.

“There will be an additional mature area of 4,000 hectares (ha) to 5,000ha this year, bringing the total mature area to more than 38,000ha.

“Its allocated capex is around RM100 million to RM120 million for the replanting of 500ha and also the maintenance expense for the 8,236ha immature area.”

On TSH’s bio-integration business which consists of the operations of biomass and biogas power plants in Sabah, PublicInvest Research highlighted that the group owns and operates a 14 megawatt (MW) per hour biomass power plant and a three MW per hour biogas power plant in Sabah.

“Other than for its internal consumption, the power generated is sold to Sabah Electricity Sdn Bhd. Due to some disruptions; it did not run at full capacity last year.

“This power generation segment is expected to contribute at least 18 per cent to our annual earnings forecasts.”

As for TSH’s cocoa business, the research arm noted that the group operates a cocoa processing plant in Klang and mainly exports to the US, European Union and Asia.

It further noted that driven by the higher sales volume of cocoa products coupled with better cocoa product prices, the group registered sales growth of seven per cent y-o-y to RM136.9 million while cocoa earnings jumped three-fold to RM31.6 million, making up the bulk of group earnings for FY18.

“We expect to see another solid performance this year.”

Overall, PublicInvest Research’s FY19 core net profit forecast for TSH amounted to RM58.2 million.

However, PublicInvest Research has lowered its FY19 earnings forecasts by 13 per cent for TSH’s plantation segment.

“We see significant increase in cost pressures this year,” the research arm explained.