INTER-Pacific Research has maintained its buy call on TSH Resources at a target price of RM1.31 and upgraded its valuation based 1.1x CY21 P/B due to TSH’s improved balance sheet strength following its plan to sell two palm oil estates in East Kalimantan.
According to the research house, the sales of the land would improve TSH’s balance sheet and would have a positive impact on the company’s valuation.
Inter-Pacific has also cut its fresh fruit bunches (FFB) production forecast for the financial year 2021 (FY21F) 23% lower to 774,000 and profit after tax and minority interest (PATAMI) to RM101.8m, 25.2% lower in view of the estate sales.
TSH has proposed to sell two oil palm estates with an area of 22,375 ha, of which 10,816 ha are planted and a palm oil mill in East Kalimantan for RM517.6 mil. The purchaser, Kuala Lumpur Kepong Berhad, will assume the loans held by TSH Global Plantation Pte. Ltd. and TSH Oversea Pte. Ltd – the two companies that holds the said land. The disposal proceeds will be used to par down RM513 mil worth of borrowings.
As at 31st Dec 2019, TSH borrowings was approximately RM1.3 bil with a net gearing of 0.83x. Assuming the disposal was completed in financial year 2019 (FY19), the group’s pro forma net gearing would reduce to 0.48x.
Total FFB production from the two estates were 231 kilo metric tonne (kmt) in 2019, representing approximately 26% of the group’s 2019 FFB production. TSH will register a one-off gain on disposal of RM38.6mil in FY21F and the disposal is expected to be completed in 1QFY21.
As at 11.43am, TSH share price stood at RM1.12 with a market capital of 1.55 billion. – Sept 3, 2020
