TSH’s Indonesian operations remain key growth driver

KUCHING: TSH Resources Bhd’s (TSH) operations in Indonesia will continue to underpin TSH’s fresh fruit bunches (FFB) production, analysts observed.

“Indonesia is expected to account for almost 80 per cent of group FFB output. TSH has 5,048 hectare (ha) of mature areas in Indonesia vs. 30,023ha in Malaysia.

“We understand that there are no issues with the weather conditions in TSH’s oil palm estates in Kalimantan and Tawau,” said the research arm of AmInvestment Bank Bhd (AmInvestment).

Nevertheless, the research team reduced its forecast on TSH on account of weaker cocoa earnings and lower palm earnings before interest and tax (EBIT) margin.

“We believe that TSH’s palm EBIT margin would not be as high as expected due to increased fertiliser, transportation and wages costs,” it said.

It noted that although TSH’s pre-tax profit is only expected to rise by 4.6 per cent in FY19F, core net profit (ex-forex changes) is envisaged to improve by a stronger 17.8 per cent.

“This is because we have assumed that TSH’s effective tax rate would normalise to 25 per cent in FY19F compared with 36.6 per cent in FY18,” it added.

“We have assumed an FFB production growth of 10.7 per cent for TSH in FY19F compared with 20.8 per cent in FY18.

“We expect a slower rate of increase in TSH’s FFB production in FY19F after the blistering 19.2 per cent growth in FY17 and 20.8 per cent rise in FY18,” AmInvestment projected.

As for TSH’s other divisions (cocoa, wood-flooring and biomass activities) it expected these divisions to record a lower EBIT of RM23 million in FY19F compared with RM29.7millioninFY18duetoweaker cocoa butter selling prices.

“So far this year, selling prices of cocoa butter have been lower than last year’s due to ample global supplies of cocoa,” it explained.