CREDIT ANALYSIS REPORT

TSH Resources Bhd - 2005

Report ID 2230 Popularity 2045 views 13 downloads 
Report Date Sep 2005 Product  
Company / Issuer TSH Resources Bhd Sector Plantations
Price (RM)
Normal: RM500.00        
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Rationale
MARC has reaffirmed the ratings of TSH Resources Bhd’s (TSH) RM100 million in nominal value Al-Murabahah Commercial Papers/Medium Term Notes (CPs/MTNs) at MARC-1ID/A+ID. The reaffirmation reflects the sturdy performances of TSH’s diversified business portfolio of palm oil milling and plantations; manufacturing of engineered solid hardwood flooring products; biomass power generation; as well as its prudent financial policy. Moderating factors include the cyclical nature of palm oil; and intensifying competition and wavering outlook in regards to the wood product market.

The palm oil and wood products divisions collectively accounted for 83% of TSH’s total revenue in FY2004. The palm oil division displayed commendable performance with revenue growth of approximately 17%, supported by improved crop yield of 25.7 MT/ha, good extraction rate of 21.4% and strong CPO prices averaging RM1,610/MT in 2004. However, in 1H2005, CPO prices trended downwards and thus impacted the division’s profit margins. Nonetheless, it was able to cushion the negative impact through improved crop yield and mill throughput. Palm oil milling remains the Group’s key revenue driver and with the commencement of the fourth mill since April 2005, its total milling capacity consequently increased to 210 MT/hr.

TSH’s wood products division, which produces engineered solid hardwood flooring products, contributed about 26% of the Group’s total revenue in FY2004. About 93% of its revenue were derived from export sales, mainly driven by the US and Europe markets (which accounted for 82.6% of wood product sales), aided by the ‘Ekowood’ brand name. Nonetheless, the performance of the wood products division is contingent upon market conditions of its export countries, log price fluctuations as well as foreign exchange movements. Notwithstanding, TSH is able to capitalise on continuous product innovation and on-going market expansion in response to challenges in engineered solid hardwood flooring markets.

Since operation began in October 2004, TSH’s biomass plant has improved its performance and registered utilisation rate of about 70% (close to 10MW vis-à-vis 14MW installed capacity). Sales of the electricity produced have been secured via a 21-year agreement with Sabah Electricity Sdn Bhd (SESB), hence providing a steady stream of cashflow to the Group. Around 40% of the electricity sales proceeds have been earmarked for the servicing of the CPs/MTNs.

TSH displayed steady financial performance in FY2004, registering a growth of 18.7% and 67.9% in revenue and pre-tax profit respectively. In 1H2005, operating profit margin, however, dropped to 9.8% compared to 12.1% in the previous year’s corresponding period. Debt service coverage (DSCR) in FY2004 was 5.75 times (FY2003: 5.86 times) supported by net operating cashflow of RM5.74 million (FY2003: RM60.63 million). In 1H2005, it is noted that the Group’s cashflow was affected by high capital expenditure amounting to RM25.4 million. Nevertheless, TSH’s debt leverage level remained manageable and is not expected to deteriorate significantly on account of the accumulation of retained earnings. Moving ahead, the Group is confident of sustaining its good financial performance backed by its profitable businesses.
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