KUALA LUMPUR, Aug 21 — TSH Resources Bhd is expected to maintain its upbeat earnings momentum, moving forward, on the back of higher crude palm oil (CPO) price and resilient fresh fruit bunches (FFB) production growth, said MIDF Research.
In a note today, the research house said the group’s FFB production was expected to remain robust as it continues to maintain its commitment in diligently carrying out the fertiliser application, which will inadvertently lead to a better FFB yield.
“This is in contrast to the general industry expectancy of a contraction in FFB production. We are projecting the group’s FFB yield to outperform the industry trend in calendar year 2020,” it said.
MIDF Research also postulated that the group would also stand to benefit from the revival of Indonesia’s higher B40 biodiesel mandate given its strategic landbanks in the region.
These would be positive for the group’s earnings momentum in the upcoming quarters.
All factors considered, it is maintaining its “Buy” recommendation on TSH with a target price of RM1.20.
TSH’s net profit for the second quarter ended June 30, 2020 tripled to RM19.82 million from RM6.05 million in the same period a year ago, while revenue rose 13.17 per cent to RM210.57 million from RM186.06 million.
This was following the higher CPO and palm kernel prices, and improved FFB production.
The research house also said that TSH’s performance in the downstream and cocoa segment will recover gradually. In the first half of 2020, its operating profit declined by 24.7 per cent year-on-year to RM14.3 million, plagued by lower profit contribution from the bio-integration division as its production was impacted by the disruption in supply of raw material.
“Nonetheless, we are of the view that the demand for both the downstream and cocoa products will gradually improve given the resumption of business activities on easing of lockdown.”
Meanwhile, Kenanga Research and Public Investment Bank have maintained a “Market Perform” and “Outperform” call on the plantation stock.
In its note, Kenanga Research said while it foresees TSH’s third-quarter earnings to improve, it expects the fourth-quarter earnings could suffer on the back of rising inventory as a result of peak production period and normalisation of demand (as inventory replenishment efforts from countries like India and China have been completed) to exert a downward pressure on CPO price.
Kenanga Research has set a target price of RM1.10 for the counter.
Public Investment Bank said the recent fire incident that occurred at its 67 per cent-owned unit, Ekowood International’s factory had resulted in damages amounting to RM12.4 million to the property, plant and equipment and inventories.
“During the quarter, TSH had sought an insurance claim of RM13.2 million with regards to the losses suffered from the fire incident.
“Since hitting a low of RM2,047 per tonne in mid-April, CPO prices have made a strong comeback, rising more than 36 per cent to the current level of RM2,800 per tonne.
“We are assuming a CPO price of RM2,500 per tonne in financial year 2020, which is below the current spot prices. Generally, we are expecting CPO prices to weaken in the second half on the back of stronger CPO production,” it said.
Public Investment has set a target price of RM1.40 for TSH.
At lunch break, shares of TSH went up by 2.91 per cent to RM1.06. — Bernama
