TSH Resources earnings intact despite temporary closure


TSH Resources Bhd’s earnings are expected to remain intact despite the recent temporary closure of oil palm plantations in six districts in Sabah as the planter’s fresh fruit bunch (FFB) production is largely contributed by its Indonesian estates.

The Sabah government imposed a lockdown on plantations in Tawau, Lahad Datu, Kinabatangan, Kalabakan, Semporna and Kunak following a spread in Covid-19 cases which was linked to a plantation worker.

In a recent report, RHB Research Institute Sdn Bhd said TSH Resources’ Indonesian estates could be difficult to be locked down should an outbreak occur as the estates are vast and widespread.

“The three weeks’ suspension on oil palm plantations in Sabah is less worrying as the impact is unlikely to be significant.

“The FFB growth for TSH Resources is largely driven by its Indonesian estates, which are still operating as normal. The valuations remain attractive at the current levels.

The research house said despite the unharvested FFB, the company will still be able to sell the fruits to the mill at lower prices.

“The three-week closure impact on Sabah will not be significant as FFB fruits remain on trees albeit slightly overripe.

“As harvesting is done every 10 to 18 days, the three-week suspension means one harvesting round is not done.

“Although overripe fruits give higher free fatty acid content, giving marginally lower prices at the mill, there is still value to be had as the fruits can still be sold. Fertiliser application can also catch up after the three-week period is over,” it said.

The Sabah state government ordered the suspension of activities at plantations in six districts to contain the spread of Covid-19 at the end of March.

The industry-led by Plantation Industries and Commodities Minister Datuk Dr Mohd Khairuddin Aman Razali appealed to Sabah Chief Minister Datuk Seri Mohd Shafie Apdal to reconsider the suspension order.

Consequently, the state government has lifted the suspension conditionally and allowed all plantations and palm oil mills in the six districts to resume operations after taking into consideration that they have not been affected by the pandemic.

RHB Research maintained its FFB growth forecast on TSH Resources for this year to range between 8% and 12% as only 10% of the company’s plantations were affected by the temporary lockdown.

“The overall impact to the company’s FFB output is not expected to be significant. For the first two months of 2020, TSH Resources posted a 5.3% year-on-year rise in output, with Indonesia posting a 9.4% increase.

“Should this lockdown be extended, the impact may be more significant as it means losing more rounds of harvesting,” it said.

RHB Research maintains its ‘Buy’ call on the planter with a target price of 75 sen.

TSH Resources last traded at 63.5 sen yesterday, giving it a market capitalisation to RM876 million.