Analysts reduce earnings forecast on TSH
KUCHING: TSH Resources Bhd’s ( TSH) earnings forecast were generally reduced by analysts, largely to account for higher finance cost assumption as well as the decline in fresh fruit bunches (FFB) volume during the third quarter of 2016 (3Q16).
In a report, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) said it reduced TSH’s financial year 2016 (FY16) core net profit (CNP) by 23 per cent to RM75.9 million after cutting its FFB yield assumption.
It also reduced TSH’s FY17 CNP by three per cent to RM124 million due to the aforementioned reason.
“The impact of El Nino has been greater than expected on TSH’s plantation estates causing FFB volume to decline 10 per cent year- on-year (y- o-y) to 403,447 metric tonnes (MT) in the first nine months of the financial year 2016 (9MFY16),” it said, noting that it has excluded RM22 million in foreign exchange (forex) gain and other one-off products in its CNP calculation.
In a separate note, the research arm of Hong Leong Investment Bank Bhd (HLIB Research) cut its FY16 to FY18 CNP forecasts by six, 4.4, and 4.2 per cent to RM91.9 million, RM122.6 million and RM126.1 million, largely to account for higher finance cost assumption.
It said, on a quarterly basis, despite a flattish revenue growth, 3Q16 CNP declined by 18.5 per cent to RM18.9 million, as higher plantation earnings (arising from FFB output recovery), reduced losses on wood product division, and higher associate and joint venture (JV) contribution were more than offset by higher finance costs and tax expense.
However, it noted that FFB output increased by 30.1 per cent to 151,300 tonnes, boosted mainly by output recovery at its Indonesian operations (while Sabah estate has yet to show improvement).
On a year to date basis, HLIB Research noted that TSH’s first nine months of 2016 (9M16) CNP declined by 18.2 per cent to RM57.8 million, as higher plantation earnings (arising from higher average CPO price realised, partly offset by lower FFB output) and improved associate and JV contributions were more than offset by higher finance costs and tax expense.
Meanwhile, on TSH’s plans to privatised Ekowood, it opined that the proposed privatisation should allow TSH to improve Ekowood’s financial performance via a restructuring on Ekowood’s operations.
“The latest exercise (once completed) will result in a marginal dilution in TSH’s earnings per share ( EPS), arising from the increased issued shares. Based on our assumptions, the latest exercise will dilute TSH’s EPS by circa 1.5 per cent,” it added.
MIDF Research said it was neutral on the proposal as potential dilution impact of the corporate exercise would only account to less than one per cent to TSH’s FY17 EPS.
Of note, TSH has proposed to privatise Ekowood at RM0.40 per share via share issuance of TSH shares at issue price of RM1.92. Note TSH currently owns 67.46 per cent of Ekowood. Total new TSH shares to be issued are 11.39 million (0.8 per cent of current share base of 1.345 billion).
Overal l, MIDF Research maintained a ‘neutral’ view on the stock.
It explained, “On the positive side, TSH’s young tree age profile of circa 7.3 years old should allow them to register better FFB growth in the long run. However, short term earnings may still be affected by low FFB volume.”