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.

Review 2013 / Preview 2014

Year 2013 Review

Year 2013 is an encouraging year for me in term of stock market investment. Though I didn't set a target, I have achieved a portfolio return (Jul-Dec 2013) beyond my own expectation.

The performance of my portfolio is largely due to the bullish sentiment in small cap stocks in 2013. There is no big cap or index stocks in my portfolio, as my priority at the moment is growth.

The best performing stock in my portfolio is undoubtedly Inari, which gains 123% in 5-6 months time. I came to know Inari only in June when I screened through almost all the stocks painstakingly to find a few to invest in.

Initially I decided to make Inari my heavyweight stock, as I was very excited about its prospect. However, I ended up diversifying into other stocks such as Pantech, Gtronic & Scientex. The failure to increase holding in Inari has become a little regret to me. Sometimes diversification may work against us.

Looking back retrospectively, I think I should not have bought Pantech, Gtronic & Scientex at that time although all of them are good companies, as they are not very undervalued. Only Gtronic managed to make significant gain (30%), while the other two are flat. 

Lesson No.1 in 2013: Don't buy only good company, but good & undervalued company.

       Best performer in 2013: Inari

Other stocks that perform decently well include YOCB (38%), Latitude (34%) & Matrix (18%). 

I found YOCB "accidentally" when I was searching for Yokohama for its financial results. YOCB which sits right beside Yoko, caught my attention just because of its funny name. I checked its financial performance and its fundamentals, it's good.

As I thought YOCB was an unpopular stock in an unpopular industry, I decided to invest only a little as an experiment. What has happened was, YOCB suddenly gained market attention and its share price made a rally. However, I didn't top up its shares.

Lesson No.2 in 2013: Be more confident with own analysis.

For Matrix, I actually came to know this stock much earlier. Some investors were talking about its impressive dividend yield. Anyway, I didn't have any interest to study it at that time. 

I'm not sure why, one day in October I decided to take a deeper look into Matrix. Then I said to myself, why I didn't study it earlier? I've missed lower entry price and some dividends. I bought Matrix with an aim to make it one of my core portfolio stocks.

However, before I have more fund to accumulate more Matrix's shares, I met Latitude Tree in the end of November. As a result, my focus has shifted once again. Would over-diversification work against me again?

Anyway, I'm still within my target of 8-10 stocks at a time.

If calculated from 1st of July until 31st Dec 2013, Tambun's share price increases by only 18%. This is a bit of disappointment to me as I expect more and it carries a high percentage in my portfolio. However, if calculated from 1st Jan 2013, Tambun has gained exactly 100% in 2013 (from RM0.755 to RM1.51). This is the reason behind my higher unrealized paper profit. 

As for Tropicana which suffers 35% loss, perhaps I should set a cut loss rule in the future. From my previous habit, I probably would have averaged down Tropicana a couple of times. But this time I didn't, fortunately. Anyway, I still have some confidence in Tropicana.

Lesson No.3 in 2013: Don't buy recklessly, especially when the stock has bad "Qi", ie in downtrend.

Year 2014 Preview

I believe that one will have a better chance to achieve his/her goals if he/she writes down the goals and shares them to others.

For year 2014, I'm not too confident that I can achieve better stock investment result than year 2013 (39% from Jul-Dec 2013). 

A more realistic target should be to beat the KLCI index. However, I hope to achieve at least 30% return every year. If not, it's hard for me to achieve my long term early retirement plan.

If everything goes well, I will promote Latitude to my core portfolio in 2014.

I am likely to sell quite a big portion of my shares later this year, as more cash will be needed to bring 6 persons for vacation abroad.

Besides, I also hope that my property investment will start to bear some fruits this year, at least to lessen my burden on loan repayment.

Lastly, I wish everyone a healthy and prosperous 2014.

How To Calculate Portfolio Return?

Year 2013 has passed... Happy New Year 2014 to all.

When I try to calculate my overall portfolio return for year 2013, I face some problems.

As mentioned in previous posts in this blog, I only started to get really serious with stock market investment from June 2013, and I only started to calculate gain on monthly basis from October 2013.

Prior to June 2013, I have sold all the stocks and only left one Tambun behind. As the gain & loss of previous transactions almost break even, I'll consider July 2013 as the start of my portfolio for 2013.

However, this will not reflect the true performance of the portfolio for year 2013 as Tambun, which carries a high percentage in the portfolio, was bought and accumulated since 2012. All other stocks were bought after June 2013 though.

Another problem is, I bought and sold shares quite a number of times since the start of July 2013. How can I calculate the true return of my portfolio accurately?

For example,

Mr Y put in RM10,000 in his portfolio on the 1st of Jan 2013 and do nothing after that. In the end of the year (31 Dec 2013), his portfolio value increases to RM15,000. His portfolio return will be 50%. This is straight forward.

If Mr Y adds RM5,000 to buy another stock on 1st Dec 2013 and its share price remain the same until end of Dec 2013, what will be his overall return for year 2013?

In this case, his total investment in year 2013 will be RM15,000 (initial RM10,000 + later RM5,000), and his portfolio value in the end of Dec 2013 will be RM20,000 (value from initial RM15,000 + value from later RM5,000). Does the return of his portfolio calculated as:

Total gain in 2013 divided by total investment in 2013, ie:

[RM20,000 - RM15,000] / RM15,000 = 33.3% ??

I don't think it is a true reflection of the performance of this portfolio as the additional investment made in December does not have much time to generate return.

For the denominator of RM15,000 in this calculation, RM10,000 of it generates return for 12 months, while RM5,000 of it only generates return for 1 month. This has unfairly dragged down the overall portfolio performance from 50% to 33%.

Lets study another scenario,

Mr B bought 10,000 shares of stock Z at RM1.00 per share on 1st Jan 2013. His initial investment will be RM10,000.

He sold 2,000 shares of stock Z on 1st June 2013 at the price of RM1.50 per share, with a net gain of RM1,000 (excluding transaction cost).

In the end of Dec 2013, stock Z closes at RM2.00 per share. What will be Mr B's overall return in year 2013?

[Unrealized gain + realized gain] divided by initial capital value, ie:

[RM2 - RM1] x 8000 shares + [RM1.50 - RM1] x 2000 shares, divided by RM10,000 = 90% ??

OR

[Unrealized gain + realized gain] divided by end capital value, ie:

[RM2 - RM1] x 8000 shares + [RM1.50 - RM1] x 2000 shares, divided by RM8,000 = 112.5% ??

This calculation seems reasonable but not quite right. Though Mr B initial investment is RM10,000 in Jan 2013, it has been reduced to RM8,000 from June 2013 onward after 2,000 shares have been sold. In other words, the share price gain from June to Dec 2013 (from RM1.50 to RM2.00) is generated from only RM8,000 capital, not RM10,000 as used in the denominator of the calculation above.

If we change the denominator to RM8,000, which is the capital remaining in the end of 2013, the same question still arises as the return from Jan to June 2013 is generated from RM10,000, not RM8,000.

In real life, most investors buy and sell shares multiple times during a year, and have a net increase or decrease from their initial capital. This makes the calculation of portfolio return even more complicated.

I try to search online to find out the way to calculate portfolio return more accurately and find one method using approximation equation. The formula is:

Ending value - 0.5(net changes)

----------------------------------------------                         -   1  x100%

Beginning value + 0.5(net changes)

Net changes can be net addition or net withdrawal from Jan 13 to Dec 13.

From the example of Mr B above, beginning value is RM10,000, ending value is RM16,000 (8,000 shares x RM2). Net changes will be net withdrawal of RM3,000, thus -3,000  (2,000 shares x RM1.50).

16,000 - 0.5(-3,000)

-----------------------------                - 1 x100%   =  105.9%

10,000 + 0.5(-3,000)

Thus, Mr B's portfolio return for year 2013 is 105.9%.

The basis of the formula is actually quite simple, average (50%) of the withdrawal is added into the beginning value and subtracted from the ending value, and vice versa.

For Mr Y's case in earlier example, his portfolio return should be:

20,000 - 0.5(5,000)

---------------------------                - 1 x 100%  =  40%

10,000 + 0.5(5,000)

This is an approximation equation and will not be 100% precise. Like statistics, the accuracy will improve if the additions and withdrawals are done evenly and the amounts are not large compared to total portfolio value.

This formula includes both realized and unrealized gain for a period of time. To include the dividend gain, I will add it into the ending value to generate my overall return for year 2013.

I'm not sure whether this is the correct & simplest way to calculate overall portfolio return for share investment. If anyone has any recommendation or objection, please feel free to comment.

My Portfolio Dec13

Summary for December 2013

December 2013
Numbers of stocks	9
Cash/Share ratio	0
Share Bought	Latitud @ 1.62 (add)
Share Sold	Tambun @ 1.42 (part)
Overall
Unrealized Gain (%)	57.5
Overall Return Jul-Dec 2013* (%)	39.0

* Overall Return includes unrealized, realized & dividend gain calculated from 1st July 2013 to 31st Dec 2013.



Stock Portfolio @ End Dec13

Core Portfolio

Stocks	Average	Latest	G/L (%)
TAMBUN	0.77	1.51	96.1

Satellite Portfolio

Stocks	Average	Latest	G/L (%)
GTRONIC	2.43	3.17	30.5
INARI	0.73	1.63	123.3
LATITUD	1.56	2.08	33.8
MATRIX	2.86	3.41	18.4
PANTECH	0.98	0.975	-0.5
SCIENTEX	5.47	5.69	4.0
TAMBUN-WA	free	0.895	n/a
TROP	1.89	1.22	-35.4
YOCB	0.69	0.95	37.7

Comment:

• Add some Latitude shares in early December as planned
• Forced to sell some of Tambun shares in the end of December to take cash, as over-invested.

Plan:

• To promote Latitude to core portfolio. However, it should be done cautiously since the acquisition of remaining shares in LTIGL by Latitude is delayed.