PETALING JAYA: TSH Resources Bhd has been upgraded to a “buy” following the termination of an earlier proposal to sell a 90% stake in its two Indonesian plantation companies to Kuala Lumpur Kepong Bhd (KLK).

       RHB Research, which is positive on the termination in the short term, said TSH will be able to capitalise on the crude palm oil (CPO) price increase as well as the short-term recovery in production growth.

       “The retention of these companies would allow the TSH Group to pare down its debts organically from an improved cashflow position.

       “TSH would also be able to benefit fully from the output recovery from its Indonesian operations since the two companies account for 25% of TSH’s total planted area, ” the research house in its latest report.

       “We make no changes to our forecasts, as we had not previously imputed the proposed disposal into our assumptions, ” it added.

       The research firm has upgraded TSH to a “buy” from a “neutral” with a new target price of RM1.20, from RM1.30 previously, with a 13% upside and a circa 2% forecast financial year 2021 (FY21) dividend yield.

       It added that the valuation method of applying a target price-to-earnings ratio of 16 times on its FY22 forecast earnings from a sum-of-parts valuation previously is in line with its mid-cap peers.

       “Our target price implies an enterprise value per ha of US$12, 000 (RM49, 992), which is within the peer range of US$10, 000-US$15, 000 (RM41, 660-RM62, 490) per ha, ” it said.

       TSH had before this entered into an agreement to sell its 90% stakes in Farinda Bersaudara and Teguh Swakarsa Sejahtera to KLK for a total consideration of RM517.6mil, of which the deal is now scrapped as the conditions have not been satisfied within the stipulated period.

       Both companies have a combined land bank of 22, 375ha and a 60-tonne-per-hour oil mill.