PETALING JAYA: Kenanga Research is keeping its “market perform” call on plantation group TSH Resources Bhd
, after evaluating the company’s proposed secondary listing on the Main Board of the Singapore Stock Exchange (SGX).
On July 21, TSH Resources announced via a filing with Bursa Malaysia of its intention to undertake a secondary listing of and quotation for its entire issued ordinary shares on the Main Board of the SGX, without involving the issuance of any new shares, while reiterating that Bursa would remain as the primary stock exchange on which its shares are listed.
The group’s statement said shares of the company held may be transmitted between Bursa and SGX.
Kenanga Research believes the proposal makes investment sense for TSH Resources, along with its longer-term prospects if this proposal for a secondary listing in SGX goes ahead, although it sees no immediate impact of the listing on the group’s earnings, assets, liabilities or the issued share base. The research house’s commented in a note that TSH Resources is unusual among Bursa-listed plantation entities as the bulk of its earnings are from Indonesia and much of its future organic expansion will be as well.
As such, it said the group may wish to fund flexibility beyond ringgit-centric avenues, and at the same time it could be looking to ease any pending acquisition or disposal with Indonesian parties as many are comfortable with the SGX and Singapore.
“At the same time, keeping its primary listing with Bursa is sensible as Malaysia is still home to some of the world’s leading plantation groups,” the research house said.
It noted the proposed Singapore listing will widen TSH Resources’ existing shareholding base, provide additional funding avenue if need be, as well to garner greater regional and international visibility.
Looking at the prospects of TSH Resources from a wider angle, the research house is expecting the price of crude palm oil (CPO) to average around RM3,700 per tonne over this year and the next on a tight supply and demand scenario.
Kenanga Research pointed out that while global edible oil supply is improving, demand is also increasing and hence inventory is still fragile heading into 2024.
“Meanwhile, the risk of a 2024 supply downgrade due to El Nino has risen, so higher CPO prices moving forward cannot be ruled out.
“However, margins are expected to stay challenged for the first of half of 2023 with costs more likely to ease from the latter half onwards,” the research house said.
At the same time, Kenanga Research said wages are also trending northward while fertiliser and energy costs have fallen. Seasonally higher harvest in the second half of the year should also lower expenses for plantation players.
Separately, Kenanga Research said the high gearing has held back land development for TSH Resources prior to 2022, but strong operating cash flows, part-sale of its north-east Kalimantan land bank for RM429mil, and sales of two of its Sabah estates for RM258mil last year has reduced net debt from RM816mil at the end of 2021 to just RM131mil as of March this year.
“Therefore, planting on 20,000 to 25,000 ha of empty oil palm land TSH Resources already owns should start within a year,” it said.
Kenanga Research is keeping its target price of RM1.10 a share for the company.
