TSH upbeat on palm oil

by **Cals** Sun 22 Sep 2013, 19:27

Published: Saturday September 21, 2013 MYT 12:00:00 AM
Updated: Saturday September 21, 2013 MYT 6:56:22 AM
TSH upbeat on palm oil
BY JOSEPH CHIN
[You must be registered and logged in to see this image.]
THE slump in crude palm oil prices (CPO) this year has seen an erosion in earnings for most plantation companies in Malaysia but TSH Resources Bhd is among the few which proved the exception.
TSH Resources chairman Datuk Kelvin Tan is a firm believer in the long-term prospects of the oil palm business, which saw the company producing a strong set of earnings in the second quarter ended June 30, 2013.
About 77% of TSH’s oil palm plantings are still immature and young mature. It expects the strong trend of improving production output from these plantings in the next three years.
“Strong financial performance of TSH comes from our high growth in fresh fruit bunches (FFB) over the past years. In particular, we achieved 39% increase in FFB production for the first half of 2013,” he says in an email interview with StarBizWeek.
“TSH has been growing rapidly as a plantation company. We are now seeing some fruitions of our hard work put in several years ago. This is just the beginning. As we continue to put in more hard work to build this company, we foresee more growth in the years ahead,” he adds.
In the second quarter ended June 30, 2013, its profit before tax rose 21.1% to RM24.56mil from RM20.27mil. For the first half ended June 30, its earnings rose a strong 25.2% to RM37.17mil from RM29.68mil in the previous corresponding period.
The sterling performance, despite significantly lower crude palm oil (CPO) price for the six months of approximately RM2,240 against RM3,185 last year, was due to an increase in FFB production volume and better cost efficiency.
However, Tan is all set for the challenges even as CPO for third month delivery fell RM2 to RM2,320 on Thursday.
TSH has also been busy on the corporate front, selling its 16.78% stake in Pontian United Plantations Bhd to Felda Global Ventures Holdings Bhd for RM196mil cash which would see it netting RM86mil.
It has also undertaken two private placements of 20.86 million shares each. At an indicative RM2.32 a share, the proposed private placement raised RM48.4mil, of which almost all would be used as additional working capital requirements and/or for potential investment projects.
TSH’s share price had over the past three years surged from 99.5 sen in January 2010 to a high of RM2.83 on July 11, 2012 and ending up 4 sen at at RM2.35 on Thursday.
Underpinning the strong performance in its share price was its strong financial performance over the period as it expanded its plantation land bank.
Kenanga Investment Research said the short-term outlook for TSH should be positive as it expected the strong FFB production growth to cushion its third-quarter earnings against the significant on-year drop in CPO prices.
“Long-term outlook remains bright with 77% of its oil palm trees below seven years old which support higher yields going forward. Hence, we believe its plantation can sustain FFB growth of more than 18% per annum over the next three years,” it said.
Below is the extract of the interview with Tan:
What measures would you implement to ensure the strong growth in TSH’s financial performance?
TSH has been growing rapidly as a plantation company. We are now seeing some fruitions of our hard work put in several years ago. This is just the beginning. As we continue to put in more hard work to build this company, we foresee more growth in the years ahead.
We have now grown to into a sizable plantation company. This has also become a platform for the company to expand further into the future years.
The company has the necessary planted areas and matured trees to generate increasing FFB production and cash inflows to fund further expansion. At the same time, TSH has about 65,000 ha of unplanted land bank that can be used for new plantation development. On top of that, we are still actively seeking to purchase more plantation lands.
TSH has all the key ingredients, including human resources, infrastructure and financial standing, to sustain its future growth. We have to build on the key ingredients further.
We can only grow if we have good people in our company. With our business growth, we provide a growing platform for young talents to advance their careers and grow with us.
This platform is equally important to us in addition to incentivised remuneration package and taking care of employee welfare (Tan had in 2007 set up the DatukKelvin Tan Welfare Fund to provide assistance to the employees and their families).
We prioritise staff training. We have a training academy currently and intend to roll out the 2nd training academy in the next few months.
TSH will continue to develop and improve our high yielding ramets, Wakuba (high quality oil palm ramet with high FFB yield and oil extraction rate).
With higher production output from Wakuba, we expect to see further reduction in production cost per unit of FFB output, thus resulting in better operational margin and financial performance.

TSH would have to expand its oil palm plantations and expectations are that total oil palm planted area should exceed 50,000ha by end of 2013. Also TSH has about 60% or 65,000ha of land bank which has not been cultivated.
The 65,000ha we have in Indonesia is a key factor that we can grow continuously at the speed we deem appropriate.
This large land bank enables us to plan and execute new planting over the next five to seven years.
We target to plant about 5,000 ha per year currently. We should be able to accelerate the new planting to 10,000ha per annum in the future years.

What is the current gearing of TSH Resources?
Debt to Equity ratio of TSH is expected to reduce to about 0.5 level upon completion of three private placements and sale of our shares in Pontian United Holdings.

Apart from the two private placement exercises, what are plans for TSH Resources to raise funds for new projects and development?
We are careful in raising money by way of equity or debt to fund our expansion. We closely manage our debt to equity ratio in our business expansion of plantation development and acquisition.

TSH has shown to be an efficient plantation company which managed to capitalise on its higher volume and higher efficiency to outperform the larger plantation companies. What are the plans to stay ahead especially amid the weaker crude palm oil prices?
We believe in the long term prospect of palm oil business. We will continue to grow but at the same time we remain focused on managing our cost of production to maximise the potential profitability of this business.