Kenanga Research has maintained an “Outperform” recommendation on TH Resources Bhd from RM1.80 to RM2.08 based on the FY 22 PER 11x, after reflecting flattish CNP over FY 22-23 and improving but still weaker balance sheet.
Nevertheless, It said that TSH is fast re-capitalizing thanks to strong CPO prices as well as asset divestment to develop 25-30K Ha of new oil palm planting which will nearly double its current planted area.
On 6 July 2021, TSH proposed to sell 3,001 Ha of matured oil palm estate and palm oil mill in Sabah for RM248 m cash. The proposal involved selling three assets under three separate agreements.
Two of these assets were handed over in February 2022, leaving one final agreement which TSH announced had become unconditional on 25 March 2022.
The selling price of 3,001 Ha at about RM75k 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 25K-30K Ha of land into oil palm plantations. On completion, this would be near double the existing planted area of 32k Ha.
Kenanga said that the impact of the 3,001 Ha divestment has been factored into our earlier forecast. However, in light of elevated CPO prices staying longer, we are raising our CPO assumption for FY22 from RM4,000 to RM4,500 and from RM3,500 to RM4,000 for FY23.
Consequently, FY22 and FY23 Core EPS have been revised up by 20% and 35% respectively to 18.9 se and 19.7 sen.
