Wednesday, 8 January 2014

TSH: Wakuba To Make The Difference?

In year 2014, plantation is one of the sector to watch. Many analysts seem to be optimistic about plantation stocks as the CPO (crude palm oil) price is believed to trend upwards due to current low inventory level.

There are many heavyweight and small caps plantation stocks in Bursa Malaysia. How to choose the best to invest in?

From my observation, TSH is one of the company which stands out in 2013, mainly due to the reasons below:

  • Impressive FFB production growth
    • 9M13 FFB production grows 34% YoY
    • FFB CAGR of 30% from 2008-2012
    • Estimated FFB CAGR of 20% from 2012-2015
  • Young age profile of trees
    • About 70%  trees are <7 years old
    • About 30% are young mature between 4-7 years old
  • Huge unplanted land
    • Total plantation land at 135,800 ha, about 90,800 ha (67%) unplanted
    • Plan new planting of ~4000 ha/year 
  • Wakuba ramets
    • Oil palm ramets from TSH's own research, which is said to increase oil yield per hectare up to 10 MT/ha (average 4.5 MT/ha in Malaysia)
    • Started planting Wakuba ramets since 2012 in Indonesia, results expected from 2016
  • Aggressive expansion
    • Continue to acquire new plantation land
    • Acquired 5,180ha in East Kalimantan in Mac 2013
    • Latest in Dec 2013, acquired 60% stake of 26,294ha in Sg Kalabakan in Sabah, in which only 2,979ha (11%) are planted with 2-3 years trees

TSH Resources Berhad is a plantation company in which 4 brothers from Tan family sit in the board. 

About one year ago in the end of Dec 2012, TSH's gearing stood at an uncomfortable 1.07x. This is mainly due to its extensive new planting and acquisition strategy since 2006.

To reduce its gearing, TSH has recently sold its 16% stake in Pontian United Plantations, which it failed to acquire wholly in 2011, to Felda Global Venture for RM196mil which generates a net gain of RM85.3mil. Besides, TSH also carried out a few rounds of private placement in 2013.

The rise in cash reduces TSH's gearing to about 0.55x, until its recent announcement in Dec13 to acquire 60% stake in Sg Kalabakan estate for RM180mil. This deal will likely to increase the gearing to 0.7x when completed.

After the new acquisition, TSH total plantation land area will increase to 135,803ha. It has 31,242ha in Malaysia (Sabah) and the rest are in Kalimantan & Sumatera. The unplanted area stands at a huge 90,835ha (67%).

       TSH plantations areas

As mentioned earlier, more than 70% of TSH's planted trees are considered young and below 7 years old. As at end of June 2013, about 30% of its planted area consists of trees between 4-7 years old. That means roughly 40% 0-3 y/o, 30% 4-7 y/o and 30% above 7 y/o.

From 2008 to 2012, its FFB production increases from 198k MT to 400k MT (30% growth per annum). It is expected to achieve 537k MT in 2013.

What do all this mean? 

TSH has achieved this impressive growth in FFB production mainly from just its 30% prime trees which are above 7 years old. Thus, the figure is expected to climb significantly every year as more and more trees will reach their prime age which give the best yield.

For its plantation in Indonesia, it is estimated that 4,000ha will come into maturity in 2013, and another 3,000ha will follow in 2014.

TSH will also plant new trees at 3,000-4,000ha a year, probably increase to 10,000ha a year in the future.

Furthermore, its Wakuba trees which are expected to deliver much better oil yield (10 tonnes CPO/hectare), will start to deliver significantly from year 2016. This figure reported by MIDF is exceptionally high, given that Malaysia's average CPO/hectare is just 4.5 tonnes/ha and United Plantations, which is known for its high oil yield, registered just 5.21 tonnes/ha in 2012.

If this is true, then 100ha in TSH will be equal to 200ha in United Plantations. This translates into 100% higher revenue or 100% lower cost for TSH!

The research on Wakuba ramet has started since 2005 with RM40mil invested. TSH targets to produce 1.5mil ramet by 2015.

       Wakuba ramets

TSH's FFB production grew 6% from 399,600 MT in 2011 to 424,700 MT in 2012. 

However, I could not find the data of FFB per hectare for TSH. Its OER (oil extraction rate) is 24% (Kalimantan) and 21-22% (Sabah), which should be very good figures.

TSH has 6 mills (3 in Indonesia, 3 in Sabah) with a total capacity of 2mil tonne FFB per year. It aims to achieve a capacity of 3mil tonne capacity by year 2018.

TSH has also ventured further downstream into refinery via a 50/50 JV with Wilmar International since 2007. The TSH-Wilmar palm oil refinery in Sabah has a capacity of 2,700 tonnes/day & kernel crushing 600 tonnes/day.

Besides oil palm plantation, TSH also has rubber plantation in which it plans to build up to 10,000ha.

Other than plantation, TSH has a 67%-owned listed subsidiary Ekowood which manufactures hardwood flooring. Besides, it also has factories that manufactures cocoa products, pulp & paper. Nevertheless, all these will not contribute significantly to the group compared to oil palm.

In 1997, TSH was awarded a 100-year concession to carry out forest rehabilitation, environment conservation & industrial tree planting on 123,000ha of forest land in Ulu Tungud, Sabah.

TSH financial highlights 2008-2012


Due to the gain of RM85.3mil from disposal of Pontian United stake, TSH's FY13Q3 net profit surged 380% QoQ from RM17.3mil to RM83.3mil despite a 16% drop in revenue to RM219.4mil. 

Without this special gain plus RM51.1mil unrealized loss in foreign exchange in the first 9 months of 2013 (RM43.7mil exchange loss in FY13Q3 alone), TSH's 9M13 net profit should be at RM86.2mil (from MIDF report), which is 87% higher YoY compared to 9M12 of RM46mil. This is achieved despite a still much depressed CPO price since early 2012 (RM2,239 in Q3FY13 vs RM2,692 in Q3FY12).

For 9M13, FFB production increases 34% to 379,673MT, while CPO production increased by 19% to 224,101MT.

One concern of TSH is its gearing. After FY13Q3 (Sep13), it has a total borrowing of RM996.2mil in which almost half is current. Its cash stands at only RM53.3mil. Debt/Equity ratio is about 0.9x at that point.

Though the acquisition of Sg Kalabakan estate will increase the debt, TSH is expected to generate impressive operating cash flow in the future to reduce its gearing.

TSH gave 2.5sen dividend (RM20.8mil) for its FY2012, which is consistent with its dividend payout policy of 20-30% (27%). At current share price near RM3, the dividend yield is pathetic.

       TSH-Wilmar Refinery Plant

If TSH can achieve a net profit of about RM20mil in its FY2013Q4, then its overall net profit for FY2013 should be around RM106mil (excluding special gain/loss). With 903.8mil shares now, its estimated EPS will be 11.7sen.

At this EPS, current share price of close to RM3 seems to be quite high. However, future earning ability of TSH is strong.

Overall, I think TSH is a good plantation company with quite a lot of excitement ahead, especially with its exclusive & exceptionally high yield Wakuba ramets. 

Is it the best? I'm not sure as I haven't do enough comparison with others and I'm not too familiar with plantation sector.

There seems to be other diversified companies which have great potential in oil palm plantation such as MKH, Jaya Tiasa, Ta Ann etc.

Thus, I will put TSH into my stock alert list and will keep monitoring its progress.


  1. 10 ton of CPO per ha is almost impossible...

    To get 10 tons of CPO you need to have fruits yielding 40 tons FFB/ha with OER of 25%

    While very efficient planters (First Resources)in Sumatra and Kalimantan can only get 25-28 ton/ha with OER around 23%-24% only.

  2. Dear Gark,

    I agree, the figure 10 is hard to believe. Anyway, lets wait & see the results in 2 years time.

    I hope it's true, as the whole industry will benefit tremendously.

    From The Star 2010:
    A new oil palm clone dubbed Wakuba oil palm ramet brand was launched with a PROMISE of doubling the current oil yield.

  3. sometimes it depend on your soil conditions.

    Sumatra especially on east side (Riau) is very good soil and good yields. So is south and east Kalimantan. Sabah is also good.

    East Peninsular Malaysia and Sarawak typically have the worst yield.

    Anyway TSH is an excellent stock, with good growth, but the price now is a bit on the high side.

  4. Thanks Gark, surely you're plantation savvy. Any good plantation counters to recommend?

  5. You can look at First Resources, very young trees, high FFB yield, high OER, lots of land bank left to plant.

    PE ratio is much less than TSH. Got it's own mills and refinery.

  6. I agree with Gark. First resources is another good plantation company. Similar to TSH, they planted extensively in previous years and started to enjoy the fruit now. Net profit margin at around 40%. Net gearing is quite low too as well as have a good operation cash flow. Land mostly in Indonesia. Listed in SGX but the figures in their reports in USD.

  7. I never thought that I'll touch SGX stocks so soon, but this First Resources is an eye opener for me. Great company like Yap said. Their annual & financial report are so clear & informative. I better start to find out how to invest in SGX ASAP. Thanks Gark.

  8. Also listed on SGX is another plantation, Bumitama plantation which has even younger trees and unplanted land. However thier FFB yield and OER is not that good yet.

    If you dare venture further there are gems to be found on IDX. For example is BWPT which is own/run by ex Sime Darby Managing director.Currently BWPT have 27,600 ha 38,700 immature and 105,000 unplanted land.FFB yield is also very good for such a young plantation at 20 ton/ha with OER of 22.5%. But price is quite expensive now, FY13 PE 26, FY14 PE 16, FY15 PE 12

  9. Generally Malaysian plantation are mostly over priced. I have long shifted all my Malaysian plantation counters to SGX and IDX.

  10. Sorry wrong info, Abdul Halim Ashari CEO of BWPT is ex Boustead not from Sime Darby.

  11. Thanks Gark for your kind sharing. Found out that not many listed oil palm co. in SGX, will try to do some research on them later.