Friday, November 18, 2011

OSK Research maintains Buy on TSH Resources, ups FV to RM4.03

KUALA LUMPUR (Nov 18): OSK Research is maintaining its Buy recommendation on TSH RESOURCES BHD [] with a higher revised fair value of RM4.03.

It said TSH's nine-month earnings were slightly above its and consensus estimates as the softer palm oil price was offset by lower costs and a better oil extraction rate (OER).

OSK Research said the fresh fruit bunches (FFB) production growth continued to be stellar on-year on both the Sabah and Indonesia fronts. 'While we expect Sabah production growth to taper off going forward, Indonesia will remain the company's key growth driver in achieving double digit production growth,' it said.

On Thursday, TSH announced that for the nine months ended Sept 30, TSH's net profit jumped 131% to RM94.39 million from RM40.83 million in 2010 while revenue increased by 29.2% to RM855.69 million from RM662.22 million in 2010.

For the third quarter, its net profit surged 89% to RM34.47 million from RM18.24 million a year ago, underpinned the strong performance of its palm and bio-integration segment. Its revenue for the quarter rose 27.5% to RM273.15 million from RM214.26 million in 2010.

OSK Research said TSH's core earnings of RM87.3 million for 9MFY11, accounted for 79.3% and 77.2% of its and consensus' full-year forecasts respectively.

Revenue for the quarter itself surged 29.2% on-year but fell 17.2% sequentially amid weaker palm oil prices. Cost of sales, however, plunged by a substantial 21.6% on-quarter as third party FFB purchases dropped 16.9%, tipping the on-quarter core earnings growth into positive territory.

FFB production rose a marginal 1.2% on-quarter but soared 45.6% on-year, driven by the 60.8% growth experienced in Indonesia.

On a year-to-date basis, FFB production was 48.0% higher as Indonesia and Sabah production rose 71.8% and 18.1% respectively.

'We are tweaking up our FFB production to reflect a full year growth of 36.3% and revising upwards our OER assumption slightly to 21.2% from 21.0% previously.

'The marginal 0.6% on-quarter dip in CPO production despite a 11.5% drop in FFB processed indicates that OER improved on-quarter,' it said.

OSK Research said TSH's unplanted landbank was 66,700 ha.

The termination of the share sale agreement between TSH and Portvest in relation to the acquisition of Mildura Investment on Oct 19 removed some 12,000 ha from TSH's total landbank.

'However, the acquisition of two new Indonesian subsidiaries added another 21,300 to its landbank, bringing the company's total planted and unplanted areas to 23,800 ha and 66,700 ha respectively,' it said.

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