TSH Resources to realise full benefits of higher CPO prices

KUALA LUMPUR: Alliance DBS Research believes the recent trend in crude palm oil (CPO) prices should continue into FY20 due to the plateauing of palm oil supply with dissipation in production yields, supply disruption from El-Nino and stronger soybean prices.

It had on Tuesday upgraded its CPO price assumptions for FY20-22F from RM2,230 and RM2,410 to RM2,450 and RM2,540.

“TSH Resources (TSH) is a pure upstream planter and is expected to realise the full benefits of higher CPO prices, ” it said.

Alliance DBS Research said TSH is not affected by higher feedstock cost for refining as it has negligible downstream exposure.

TSH is also expected to experience commendable fresh fruit bunches (FFB) growth despite our expectation of lower supply from the industry next year. TSH’s trees are still young and can still manage to record higher yields.

“We believe that with higher CPO prices, its efficient operational practices and pure upstream exposure, TSH will experience stronger growth in earnings for FY20-21F.

“We upgrade our target price (TP) from RM1.30 to RM1.60. Where we differ. Efficiency is key. We expect a strong upswing in TSH’s earnings when CPO prices recover.

“It has been profitable in 9MFY19 despite low CPO prices. Potential catalyst. Higher FFB yields. We believe higher FFB yields would boost TSH’s profit and provide support for share price, ” it said.

Alliance DBS Research said its discounted cash flow (DCF)-based TP stands at RM1.60, imputing FY20-21F CPO spot price forecasts of RM2,450/RM2,540 per tonne with WACC assumption of 5.8%.

The key risks to its view is its sustained low CPO prices caused by increases in Indonesia’s production levels, Europe’s ban on palm oil products and continued weakness in soybean oil price pose major risks.

Source: TheStar