KUALA LUMPUR: TSH Resources Bhd's long-term and visible growth prospects are attractive coupled with a strengthening balance sheet, Kenanga Research said.
However, Kenanga Research said TSH's latest first half (1H) of financial year 2022 (FY22) net profit of RM139.9 million had come below its expectations.
Kenanga Research said the net profit, which was lifted by strong crude palm oil (CPO) prices, came in 8.0 per cent below its expectation.
"This is despite accounting for 68 per cent of our FY22 net profit forecasts and 70 per cent of consensus' as we are expecting lower CPO prices moving forward," it said in note.
Kenaga Research said CPO prices had corrected by over 30 per cent since early-June due to aggressive actions by Indonesia as it faced storage constraints, seasonal supply improvement as well as still subdued recovery in off-take.
Nevertheless, the firm said demand, which had been dampened by Covid-19 since 2020, should be reverting to the more usual 3.0-4.0 per tonne year-on-year (YoY) growth by 2023.
"Therefore, firm CPO prices of around RM4,000 per tonne are likely to stay into 2023.
"This is backed by a fragile global edible oils supply situation and demand recovery as the world progresses towards a new post-Covid normal while still-elevated fossil fuel prices indirectly prop up demand for biofuel.
"We are maintaining average CPO prices forecast of RM4,500 per tonne for FY22 and RM4,000 per tonne for FY23," it said.
According to Kenanga Research, TSH was ready to expand its upstream oil palm planting from nearly 40,000 hectares currently to around 60-65,000 hectares over the next six to eight years.
"Hence, we are revising down FY22 and FY23 core earning per share (CEPS) by 8.0 per cent and 13 per cent respectively, on higher cost and lower production expectations.
"We also revise down its target price from RM1.90 to RM1.80 but are keeping our Outperform recommendation," it added.