TSH Resources : Earning recovery in FY17F Buy

STOCK FOCUS OF THE DAY

TSH Resources : Earning recovery in FY17F            Buy

Maintain BUY on TSH Resources with an unchanged fair value of RM2.30/share, which implies a FY17F PE of 27x. TSH's PE valuation is slightly lower than its peers. The group is currently trading at FY17F PE of 22.4x compared with Genting Plantations' (GenP) 25.9x and IJM Plantations' (IJMP) 23.0x. After two years of unexciting FFB production, we believe that TSH's FFB yield would recover in FY17F. The rebound in FFB yield in FY17F is expected to be driven by Indonesia, which accounts for almost 80% of group production. Production costs per tonne (ex-mill) are anticipated to be stable at RM1,450 in Sabah and RM1,650 in Indonesia in FY17F as the increase in the volume of palm oil production would help offset higher fertiliser costs and wages.

Risk is the group's net gearing. There is a possibility that TSH's net gearing may exceed 100% if the RM continues to weaken against the USD. About 34.6% of TSH's borrowings are denominated in USD. Excluding currency effects, we believe that the group's net gearing would ease going forward on lower capex. The group's new plantings are expected to be less than 1,000ha in FY16F compared with 2,794ha in FY15. We estimate TSH's plantable landbank reserves in Indonesia at 13,000ha, which should keep the group busy for more than seven years. On the back of a decline in new plantings, we have assumed TSH's capex to be RM110mil each in FY17F and FY18F vs. RM130mil in FY16F. The highest level of capex ever recorded was RM207.9mil in FY14. Free cash flows are envisaged to improve from (-1.0) sen per share in FY16F to 7.8 sen per share in FY17F.

Others :

Global Strategy : US- Benefit from the new guard            

Plantation: Newsflow for week 9 to 13 December            Neutral

ECONOMIC HIGHLIGHTS

China :  Pressure on exports remain

US : Expect retail sales to remain healthy

NEWS HIGHLIGHTS

Construction Sector : Bina Puri eyeing RM1bil jobs this year

Furniture Sector : Poh Huat banks on US for growth

Engineering Sector : Scomi Energy set for Ophir boost