KUALA LUMPUR: TSH Resources Bhd's proposed divestment of undeveloped oil palm land in Kalimantan will address several issues faced by the company, Kenanga Research said.
This includes allowing TSH's to pare down its debts and gearing as well as accelerate development of its remaining land bank in Indonesia.
Kenanga Research said the disposal was also expected to be earnings-per-share accretive for the company.
"The intention remains unchanged, the divestment of a largely non-contributing, less strategic assets to help pare down debts, fund the development of new oil palm planting, and the entire exercise should end up EPS accretive.
"On the last point, the circular highlighted that the financial year 2021 (FY21) contribution from this Kalimantan land amounted to only RM10 million in profit despite good palm oil prices.
"This is because only 3,819 hectares (Ha) of the 13,989 ha have been planted," it said in a note.
TSH plans to repay RM550 million of debts from the RM712 million proceeds and this is estimated to save the company about RM19 million in annual interest expense.
TSH first announced entering into a non-binding Head of Agreement (HOA) for this deal on December 12, 2021 and then on April 4 this year, it announced a conditional sale, purchase and compensation agreement to divest 13,898 ha for RM712 million cash.
The company has issued a circular for an extraordinary general meeting (EGM) on June 29 to decide on the matter.
"We expect minimal opposition during the EGM. Nevertheless, as TSH has to change the land status first before the sale, the exercise is likely to complete only in early FY23 with some risks that the sales may suffer delay or, in the worst case, fall through," Kenanfa Research said.
Kenanga Research noted that TSH's FY22 core net profit (CNP) would not be affected as the agreement should conclude only in the first half of 2023.
"The impact on FY23 CNP is positive but given that it will be for only half a year, the CNP uplift is limited to only about three per cent.
"Nevertheless, FY23 profit before tax and net profit will see a year-on-year jump due to the estimated disposal gain of RM422 million," it added.
The firm maintained "Outperform'" call for the company with a target price of RM1.90.