KUALA LUMPUR: Kenanga Research has a positive outlook on TSH Resources Bhd's decision to retain its 5,398-hectare plantation in Kalimantan, citing the increasing scarcity of oil palm land in Indonesia.
The research firm highlighted that TSH's balance sheet has significantly strengthened over the past two years.
It said that TSH's financial position is robust, with sufficient funds of RM250 million to RM300 million to cultivate 8,000 to 10,000 hectares of oil palm on land already owned by the group within the next 2-3 years.
In a worst-case scenario, TSH could extend the development period for the new planting or opt to sell the 5,398 hectares at a later time.
TSH said recently it will abort the disposal of its plantation in Kalimantan.
This was the second of a two-tranche disposal of a 13,898-ha oil palm plantation.
Kenanga Research said that TSH does not need to sell the second tranche of land.
The proceeds from the first tranche sale, combined with strong cash flows generated from its operations over the past two years, have bolstered the company's financial position, it said.
Supported by firm crude palm oil (CPO) prices, these factors have reduced TSH's net debt to RM47 million and brought its gearing ratio down to 0.02 times as of the end of the first quarter of financial year 2024 (1QFY24), it added.
According to the investment bank, 62 per cent of the Kalimantan land is cultivated with oil palms, which are, on average, 12 years old and in their prime, making them highly cash-generative.
"We see the latest move as an indication that TSH has moved from strengthening its balance sheet to embarking on growth again. We believe its latest move makes a lot of sense as oil palm land is getting scarce even in Indonesia," it said.
Kenanga Research maintained its 'outperform' rating on TSH, with a target price of RM1.30.