TSH Resources’ better performance was due to higher palm products prices, and a gain of RM53.2 million on the disposal of an estate and a palm oil mill partially offset lower sales volume.
KUCHING (May 26): TSH Resources Bhd’s (TSH Resources) net profit for the first quarter ended March 31, 2022 (1Q22) surged to RM101.86 million from RM15.57 million in the same quarter last year.
Revenue increased 38 per cent to RM337.35 million from RM244.08 million previously.
In a filing with Bursa Malaysia, the company said the better performance was due to higher palm products prices, and a gain of RM53.2 million on the disposal of an estate and a palm oil mill partially offset lower sales volume.
It also said that excluding the pre-tax gain on the disposal of the estate and palm oil mill, profit for the palm products segment for Q1 2022 increased to RM76.2 million compared with RM61.1 million for the corresponding period last year.
This was due to significantly higher average selling prices of crude palm oil (CPO) of RM4.779 per tonne and palm kernel (PK) RM3,950 per tonne, despite the realised loss on commodity futures contracts of RM26.5 million in Q1 2022 against the loss of RM8.0 million in Q1 2021.
However, it noted that the fresh fruit bunches (FFB) production for Q1 2022 was lower compared with Q1 2021, mainly due to wet weather conditions in Indonesia.
The lower amount of Indonesia export levy and duty on CPO for Q1 2022 was also attributable to the lower sales volume while the levy and duty on a per tonne basis were higher, it said.
Moving forward, the group said the CPO price is anticipated to remain elevated in the near future supported by the higher price of edible oils on the back of supply concerns arising from the Russia-Ukraine conflict.
Furthermore, the lack of rain in Argentina and Brazil, two major exporters of soybean, has resulted in a short supply from South America, putting pressure on the price of soybean oil, it said.
“The current strength of CPO price is expected to augur well for the near term earnings prospects of the group. Barring any unforeseen circumstances, the group is optimistic about achieving satisfactory performance for the year 2022.
“The group also remained optimistic on the long term prospect of the palm oil industry,” it said.
Going forward, MIDF Amanah Investment Bank Bhd (MIDF Research) believes earnings outlook on the rich side particularly from TSH Resources’ excellent performance of palm products division supported by the current favorable CPO price level.
“In term of affected FFB production, if any following the unusual heavy rainfall, we think the fertiliser application expected to improve its FFB production as the management continues to maintain its commitment in diligently carrying out the fertiliser application and young age profile of its Indonesian oil palm estates,” it said.
“We are maintaining our buy call with a target price of RM1.70 (under review) based on unchanged price earnings ratio of 19.7 times pegged on FY22 earning per share of 8.6sen.”
Similarly, Kenanga Investment Bank Bhd (Kenanga Research) maintained TSH’s average CPO price of RM4,500 per metric tonne (MT) for FY22 and RM4,000 per MT for FY23 but nudged up cost to reflect higher export levy and duties in Indonesia.
“Contribution from 22 per cent-owned associate, Innoprise Plantations, is also expected to improve from RM19 million to RM23 million on better CPO prices while prospects of the wood division should improve on firmer timber prices following Russia’s ban on log export in January 2022,” it said.
TSH also saw strong operating cash flow coupled with the RM248 million proceeds from the 3,001-hectare estate disposal saw net borrowings falling from RM816 million as at end December 2021 to RM637 million.
“Further net debt reduction is anticipated as it is in the midst of divesting 13,898 hectares in North East Kalimantan for RM712 million cash, which marks only 27 per cent of planted land to date,” it continued.
“We continue to like TSH’s longer term growth prospects – essentially to develop its oil palm upstream business on its own land bank.”
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