12/3/07 (The Edge Daily)  - KAF Research has doubled its target price for TSH Resources Bhd to RM3.60 from RM1.80 on the expected higher earnings from its palm bio-integration and palm oil refinery operations.

It said TSH remained an under-appreciated growth story offering great value at current levels as it transformed from a relatively pure downstream processor into a fully integrated agro-industrial player.

KAF Research said the TSH share price was trading at six times its price-to-earnings (P/E) ratio for financial year (FY) 2008 and 1.1 times price/book value (P/BV).

This was despite a compounded annual growth rate of 32% in the next two years, high returns on equity and over 6% yield.

In a research note on March 6, the research house said the revised target price represented an upside of 120% over the current price of RM1.63.

KAF Research also raised TSH's earnings for FY07 by 37% to RM80 million. For FY08, it revised the earnings by 28% to RM100 million and for FY09, up 32% to RM116 million.

It said TSH was expanding its upstream and downstream businesses via new acquisitions of plantations and its tie-up with Wilmar Edible Oils in Tawau for a palm oil refinery.

On the upstream operations, TSH had increased its oil palm plantation land bank to 48,972ha, of which 20,480 had been planted.

“The higher percentage of immature area of 56% or 11,500ha, and a relatively young oil palm age profile (average seven years) for the matured area, would ensure rising yields in the coming years,” it said.

The higher yields would enable TSH to reduce its dependence on external fresh fruit bunches (FFB) for its milling operations and also realise higher margins and better earnings from rising crude palm oil (CPO) prices.

TSH also planned to develop 5,000ha to 6,000ha of oil palm plantations a year over the next three years.

On downstream operations, KAF Research said TSH’s 50:50 venture with Wilmar in a palm oil refinery and kernel-crushing plant was already operational.

It said the plant was similar to IOI Corp Bhd’s existing 800,000 tonnes per annum (TPA) refinery in Sabah. TSH had expected meaningful earnings contribution in FY07, it said.