KUALA LUMPUR: TSH Resources Bhd is expected to realise a net disposal gain of RM398 million from the proposed disposal of its North Kalimantan landbank for RM679 million, Kenanga Research said.
The firm said the disposal would be positive for the company as the land was not generating profit or cash-flows.
"Assuming the Heads of Agreement (HoA) leads to a simple outright cash sale, the proposal is welcomed on several counts - earnings per share (EPS) uplift thanks to lower interest cost moving forward due to debts being repaid, less volatile EPS once debts are trimmed and an acceleration in new or re-planting which should translate to earlier growth.
"On completion, we believe TSH will likely pare down some debts. If the entire consideration of RM679 million is indeed used to repay borrowings, the reduction in after-tax interest expenses is estimated at RM25 million a year," Kenanga Research said in a report today.
Recently, TSH's 90 per cent-owned Indonesian subsidiary PT Bulungan Citra Agro Persada entered into HoA to negotiate the sales of land to PT Kawasan Industri Kalimantan Indonesia (KIKI) and PT Kalimantan Industrial Park Indonesia (KIPI).
The land is located in Tanah Kuning and Mangkupadi in Bulungan Regency by the north eastern coast of Kalimantan.
TSH said 13,215ha of the land certified under Hak Guna Usaha (HGU) would be sold for about RM679 million in cash while additional pieces of nearby land which it had acquired but still awaiting certification and registration would be sold for about RM51,380 per ha.
However, the HoA is not binding at this juncture.
Kenanga said TSH had attempted to develop 9,000ha of this land into industrial properties with an Indonesian partner in 2018 but the deal was aborted in 2019.
"It is thus not clear whether TSH still harbour such ambition as the rationale for the HoA is quite open ended.
"This contrast with two earlier proposed divestments where TSH clearly announced its intention was to repay debts following its asset sales.
"One of the previous proposals involved the sales of matured Indonesian estates to KLK for US$141 million but has since been terminated.
"The other proposal to sell matured Sabah estates and a mill for RM248 million is still ongoing but.it is unclear whether this latest deal will have an impact on the negotiation," it added.
Kenanga has maintained its "Market Perform" call on TSH, with an unchanged target price of RM1.05.