TSH a buy at RM 4.90
The EDGE FinancialDaily, Wednesday, 28 July, 2004
TSH Resources Bhd, which ECM Libra Securities Sdn Bhd has recommended a buy at RM4.90, will see its bioenergy generation and reforestation business beginning to contribute 12% and 20% of its earnings for the years ending Dec 31, 2004 and 2005 respectively.
Its milling profits will grow by 20.3% and 28.7% in FY2004 and FY2005 respectively driven by increased utilisation rate of its existing mills, and commencement of the operations of its fourth mill in Western Sumatra, Indonesia, in early 2005.
TSH is using waste products from its palm milling operations as raw material for power generation via biomass and biogas, and manufacturing.
ECM Libra said TSH had signed a renewable energy purchase agreement (Repa) with Sabah Electric Sdn Bhd. Its 14MW power plant in Kunak, targeted for completion by month-end, will supply IOMW of electricity at 21.25 sen/MWh for 21 years, under the Repa.
TSH will build a second power plant in Ipoh , pending finalization TSH will build a second power plant in Ipoh , pending finalisation of terms with Tenaga Nasional Bhd (TNB), with about half of the 8MW generated to be absorbed by TSH's Ekowood factory and the rest to be sold to TNB.
"TSH expects the rates of the Repa to be in the region of 17 sen/MWh. The facilityis expected to be commissioned in 2006''
"We forecast this division will contribute RM3.1 million and RM8.3 million to group pre-tax profit in FY2004 and FY2005 respectively," ECM Libra said.
Onits 100-yearreforestationconcession on 123,385ha in Ulu Tungud, Sabah, the revenue will be from salvage harvesting with an annual estimated 120,000 cu m for the next few years, sustainal and rotational harvesting of an annual yield of 40,000 cu m beginning 2H 2004, and harvesting on the 11,000ha replanted forest in 2012/ 2013 with a projection of two million cu m worth RM500 million.
ECM Libra said this division will begin contributing from 2H 2004, when they begin salvage harvesting and is expected to yield a pre-tax profit of RM6.5 million in the first three years. ! TSH is planning to enter into further downstream activities producing highvalue timber products.
ECM Libra also said it believed that the fair value for TSH is RM6.40 based on its revalued net asset value (RNAV).
"Furthermore, we project that the company will have a strong CAGR (compounded annual growth rate) of 25.6% over the next three years," the research house said. At RM6.40, TSH's implied FY2005 price earnings are an attractive 11.4 times, it added.
ECM Libra has forecast TSH's net profit and revenue at RM80 million and RM639 million respectively in FY2006.
It said TSH was trading below the average price-earning ratio (PER) for both plantation and timber companies.
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