MARKET DEVELOPMENT
Analysts Neutral on TSH’s Sabah Landbank Expansion
Analysts Neutral on TSH’s Sabah Landbank Expansion
29/12/2014 (Borneo Post) - Analysts are generally neutral on TSH Resources Bhd’s (TSH) recent announcement of its plans to expand its footprint in Sabah.
Of note, TSH has entered into a Share Sale Agreement to acquire 70 per cent stake in Rinukut Sdn Bhd (RSB) for RM18.6 million which owns a 60 per cent stake in Rinukut Plantations Sdn Bhd (RPSB) that has a 5,000 hectare palm oil plantation landbank in Gunung Rara/Kalabkan, Sabah.
According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), within this 5,000 hectare of landbank, 1,279 hectare has been planted with another 2,720 hectare available for future planting.
The deal, which is a Related Party Transaction (RPT), is expected to complete in the second quarter of 2015 (2Q15) and TSH effective stake in RPSB should be 42 per cent (60 to 70 per cent) post the completion, Kenanga Research said.
In a recent report, the research firm commented, “We are neutral on the news as its short term impact to earnings is likely to be only around RM1 million or less than one per cent of TSH base earnings.”
It further noted, the impact of the deal on TSH’s balance sheet is likely to be minimal as it expected its net gearing to increase slightly to 0.78-folds (from 0.77-folds currently).
It explained, effective enterprise value per hectare (EV/ha) valuation for the deal works out to be RM11,100 per hectare.
“Although the deal is regarded as RPT, we think the price is fair as its EV/ha of RM11,000 is close to the EV/ha of RM11,200 for recent offer made by TSH to acquire landbank at Sungai Kalabakan in December 2013 (which is a Non-RPT deal).”
On its outlook, Kenanga Research said, “We believe that current low crude oil prices (CPO) prices are likely to limit TSH to only 10 per cent in FY14.”
It added, due to TSH’s high fresh fruit bunches (FFB) growth with three-year compounded annual growth rate (CAGR) FFB growth of 19 per cent, it is likely to keep the recommendation on this stock as ‘market perform’.
Meanwhile, Public Investment Bank Bhd’s research arm (PIVB) noted, for TSH’s prospects in FY15, management has allocated RM150 million capital expenditure (capex) compared to RM180 million this year.
“It also targets to plant 4,000 hectare and projects FFB production growth of 15 per cent compared to our forecast of 13.9 per cent.
“Currently, the total plantable landbank stands at 40,000 hectare, which will last for the next 10 years. Given the better outlook on cash flow, management is also planning to lower its gearing level and improve its current dividend payout of 15 to 20 per cent,” it added.
Of note, TSH has entered into a Share Sale Agreement to acquire 70 per cent stake in Rinukut Sdn Bhd (RSB) for RM18.6 million which owns a 60 per cent stake in Rinukut Plantations Sdn Bhd (RPSB) that has a 5,000 hectare palm oil plantation landbank in Gunung Rara/Kalabkan, Sabah.
According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), within this 5,000 hectare of landbank, 1,279 hectare has been planted with another 2,720 hectare available for future planting.
The deal, which is a Related Party Transaction (RPT), is expected to complete in the second quarter of 2015 (2Q15) and TSH effective stake in RPSB should be 42 per cent (60 to 70 per cent) post the completion, Kenanga Research said.
In a recent report, the research firm commented, “We are neutral on the news as its short term impact to earnings is likely to be only around RM1 million or less than one per cent of TSH base earnings.”
It further noted, the impact of the deal on TSH’s balance sheet is likely to be minimal as it expected its net gearing to increase slightly to 0.78-folds (from 0.77-folds currently).
It explained, effective enterprise value per hectare (EV/ha) valuation for the deal works out to be RM11,100 per hectare.
“Although the deal is regarded as RPT, we think the price is fair as its EV/ha of RM11,000 is close to the EV/ha of RM11,200 for recent offer made by TSH to acquire landbank at Sungai Kalabakan in December 2013 (which is a Non-RPT deal).”
On its outlook, Kenanga Research said, “We believe that current low crude oil prices (CPO) prices are likely to limit TSH to only 10 per cent in FY14.”
It added, due to TSH’s high fresh fruit bunches (FFB) growth with three-year compounded annual growth rate (CAGR) FFB growth of 19 per cent, it is likely to keep the recommendation on this stock as ‘market perform’.
Meanwhile, Public Investment Bank Bhd’s research arm (PIVB) noted, for TSH’s prospects in FY15, management has allocated RM150 million capital expenditure (capex) compared to RM180 million this year.
“It also targets to plant 4,000 hectare and projects FFB production growth of 15 per cent compared to our forecast of 13.9 per cent.
“Currently, the total plantable landbank stands at 40,000 hectare, which will last for the next 10 years. Given the better outlook on cash flow, management is also planning to lower its gearing level and improve its current dividend payout of 15 to 20 per cent,” it added.