TSH Resources says palm oil yields set to rise
PETALING JAYA: TSH Resources Bhd, the plantation company that also has operations in Indonesia, says palm oil yields will extend their rebound as the impacts of El Nino continue to wane.
Fresh fruit bunch production jumped more than 20% in the first half from a year earlier to about 600,000 tonnes, Datuk Tan Aik Sim, its group managing director, told Bloomberg.
That’s the biggest increase in five years and output in the second half is expected to accelerate as the yield-sapping effects of El Nino fade, he said. It has plantations across Sabah and Sumatra and Kalimantan.
“The second half of the year will be better than the first half,” Tan said. “Sometimes when you are hit with El Nino, the impact can go up to 18 to 20 months.”
Benchmark palm oil futures have tumbled 15% this year on expectations production in Malaysia and Indonesia, which together account for about 85% of global supply, will increase as oil palms recover from drought.
Malaysian output last year slumped to the lowest since 2010 and Indonesia recorded its first contraction in two decades as El Nino scorched plantations and hindered fruit growth.
The company’s shares have declined 10% this year compared with a 7.9% gain on the benchmark FTSE Bursa Malaysia KLCI Index and a 1.1% increase in the exchange’s Plantation Index.
TSH profit declined more than 30% in the first quarter, which Tan attributed to foreign exchange accounting losses. It posted a 63% gain in core profit in the period amid improved production of fresh fruit bunches.
TSH shares have dropped in line with the decline in palm oil this year as it is an upstream company and sensitive to prices, said Alan Lim, plantations and property analyst at MIDF Amanah Investment Bank Bhd. “The bottom for crude palm oil has been established at 2,500 ringgit. As a result, TSH’s stock price should have bottomed as well.”
“The fundamentals of the company remain intact and the direction is still the same,” Tan said. “Production this year will be better than last year.”
About 60% of TSH’s planted area consists of young or immature trees, signaling that earnings will be boosted in a few years when those palms start producing more fruit, according to Tan. This will also reduce the company’s gearing and increase cash-flow, he said.
“We are starting to see the trees fruiting, but it is still small tonnage per hectare,” Tan said at the company’s headquarters. “Let it grow, let it grow, let it grow, and then in three to four years we can start again to see how we can grow further.”
TSH’s cost of producing a ton of crude palm oil is RM980 in Sabah and RM1,300 in Indonesia, Tan said. Palm oil futures were at RM2,629 a tonne in Kuala Lumpur.
The company is also looking to purchase more land to expand its plantations, Tan said. — Bloomberg