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Mahamad Rodzi Abdul Ghani




Mahamad Rodzi Abdul Ghani


The Star



TSH Resources earnings improving with efficient op
Friday May 6, 2005 - TSH Resources Bhd's earnings are set to improve,boosted by the overall efficiency of its operations, investment in palmoil milling and biomass power generation, said analysts.

An analyst with Citigroup Smith Barney said expansion of TSH's plantationoperations in Indonesia, the building of a biomass power plant and loggingpotential at its 100-year forestry concession in Sabah, had placed thecompany on a firm footing for growth.

In addition, he said, TSH had secured a job worth RM48.5mil with BritishAmerican Tobacco to meet the company's carbon requirements.

"We've initiated coverage with a buy/low risk rating and a discounted cashflow-based target price of RM2.45, equivalent to 13 times 2005 earnings.Together with the expected 4.4% gross yield, the expected total return is39%," said the analyst.

Historically, TSH's growth had been led by its engineered solid-hardwoodflooring operations, via 65%-owned Ekowood International Bhd, which sawthe Sabah-based company's net profit increase by a cumulative 250% toRM21mil from 2001 to 2004.

The company's recently commissioned 14MW renewable energy power plant, forwhich Tenaga Nasional contracted to pay 8.3MW at 21.25 sen/kWh, and the55% effective expansion of its palm oil mill and operations from last yearup to 2007, coupled with its maturing plantations, would also improve itsbottom line.

"We expect a 15% earnings per share (EPS) compounded annual growth ratefor the financial year ended Dec 31, 2004 (FY04) to 2007,'' said theanalyst.

The company's EPS had been growing by 40% per annum over the last threeyears.

"The pace is expected to slow down, but the 15% per annum we forecast upto 2007 is still respectable, and impressive relative to the 10 timescurrent earnings the stock is trading at," he said, noting that thestock's current price was equivalent to less than eight times SmithBarney's 2007 earnings forecast.

In a filing to Bursa Malaysia, TSH said it would adopt a 20% to 30%dividend payout ratio.

"The 6.9 sen per share dividend in 2004 was equivalent to a 27% net payoutratio. We forecast a similar ratio this year, equivalent to 8 sen pershare," said the analyst, who added that the stock was ripe for are-rating.

For FY04, TSH registered a 90% growth in net profit to RM72.4mil onRM480mil turnover.