Analysts favours TSH’s move to divest less strategic assets

KUCHING: TSH Resources Bhd’s (TSH) move to divest less strategic assets to pare down debts and to accelerate development of new oil palm area to near double current planted area “makes sense”, analysts opine.

The research arm of Kenanga Investment Bank Bhd (Kenanga Research) recapped that on July 6, 2021, TSH proposed to sell 3,001 hectares (ha) of matured oil palm estate and palm oil mill in Sabah for RM248 million cash.

“The proposal involved selling three assets under three separate agreements,” Kenanga Research recalled.

“Two of these assets were handed over in February 2022, leaving one final agreement which TSH announced had become unconditional on March 25, 2022.

“With this asset now merely pending hand over, the entire divestment is as good as concluded.”

According to Kenanga Research, the selling price of 3,001 Ha at about RM75,000 per ha was reasonable considering that over 2,000 Ha of the planted area are already in need of replanting with trees at or approaching 25 years old.

“The mill is also over 20-year in age. More importantly, the proceed coupled with stronger operating cashflow will allow the group to not only pare down debts but also accelerate the development of 25,000 to 30,000 ha of land into oil palm plantations.

“On completion, this would near double existing planted area of 32,000 ha.”

Looking ahead, Kenanga Research opined that further divestment cannot be ruled out.

“In December 2021, a 90 per cent Indonesian subsidiary of TSH has entered into Heads of Agreement (HOA) to negotiate the sales of land to PT Kawasan Industri Kalimantan Indonesia (KIKI) and PT Kalimantan Industrial Park Indonesia (KIPI).

“The land is located in Tanah Kuning and Mangkupadi in Bulungan Regency by the north eastern coast of Kalimantan.”

The research arm gathered that 13,215 Ha of the land certified under Hak Guna Usaha (HGU) will be sold for about RM679 million in cash while additional pieces of nearby land which TSH has acquired but still awaiting certification and registration will be sold for about RM51,380 per ha.

“However, the HOA is not binding at this juncture but recent extension of the original negotiation period suggests discussion could be serious.

“Assuming the HOA leads to a simple outright cash sale, the proposal is welcomed on several counts: earnings per share (EPS) uplift thanks to lower interest cost moving forward due to debts being repaid, less volatile EPS once debts are trimmed and further acceleration in new planting which should translate to earlier growth.”