Expected higher CPO prices will boost TSH earnings

by **Cals** Sun 17 Nov 2013, 21:29

Published: Saturday November 16, 2013 MYT 12:00:00 AM
Updated: Saturday November 16, 2013 MYT 8:32:27 AM
Expected higher CPO prices will boost TSH earnings
BY ANALYST REPORTS
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TSH RESOURCES BHD
By Hwang DBS Vickers Research
Buy (maintained)
Target price: RM3.00

WHILE crude palm oil (CPO) prices remain subdued, higher-than-expected prices would be positive for TSH given the exponential increase in fresh fruit bunch (FFB) yield of immature trees.
The research house estimated a 10% increase over our assumed CPO price would lift financial year ending Dec 31, 2014 (FY14) forecast earnings by 11%. TSH is on track to achieve 3-year FFB compounded annual growth rate of 18% from FY12 to FY15.
TSH’s recent private placements raised a total of RM141mil cash proceeds, while the disposal of 16% stake in Pontian United Plantations added RM195mil cash to its war chest.
This should improve its balance sheet substantially, as net gearing is expected to drop to 0.5 times by year-end from 1.1 times in June.
Hwang DBS Vickers believes TSH will continue to seek good plantation land bank despite having about 70,000ha of unplanted land bank in Indonesia.
The construction of two new palm oil mills in central Kalimantan and west Sumatra will take off next year. These will cater to rising Indonesian contribution, where 76% of its total planted area is still below eight years old.
The company is also on track to achieve 4,000ha new planting in FY13, within our expectation.
Hwang DBS Vickers believes TSH is on the cusp of an exponential growth trajectory supported by strong FFB volume growth.
AMMB Holdings Bhd
By CIMB Research
Neutral (upgrade)
Target price: RM7.70

CIMB Research cut its earnings forecasts for AMMB as it lowered the loan growth and margin assumptions.

But the research house’s dividend discount model-based target price (10% cost of equity, 4% long-term growth) went up, following the roll-over to end-2014.

Despite the weaker-than-expected the first-half results, CIMB Research upgraded AMMB from “underperform” to “neutral” due to its below-sector price-to-earnings (P/E) valuation, and strong expansion in fee income.

First-half earnings growth was largely supported by a net write-back of RM31mil in credit costs, and a spike in insurance income due to the inclusion of Kurnia Insurans’ contribution.

However, the first-half net interest income only grew by 0.8% year-on-year, owing to the 20-basis-point contraction in net interest margin and single-digit loan growth.

Loan growth softened from 7.6% in June 2013 to 4.2% in September 2013 due to the softening of the pace for car loans from 4.5% to 1.3%, and a contraction in several business loan segments.

However, the growth momentum for residential mortgages picked up slightly to 8.4% in June 2013, while manufacturing and general commerce loans still grew at 5.1% and 11.2% respectively.

Although the gross impaired loan ratio rose from 1.88% in June 13, it remained benign at 1.95% in September 2013.

Loan-loss coverage fell from 132.2% in June 2013 to 129.2% in September 2013.

CIMB Research did not advise investors to accumulate AMMB shares given the concerns over margin contraction and upturn in credit costs.