CREDIT ANALYSIS REPORT

TSH SUKUK MURABAHAH SDN BHD - 2022

Report ID 605389004694 Popularity 92 views 13 downloads 
Report Date Apr 2022 Product  
Company / Issuer TSH Sukuk Murabahah Sdn Bhd Sector Plantations
Price (RM)
Normal: RM500.00        
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Rationale
Rating action     
MARC Ratings has upgraded TSH Sukuk Murabahah Sdn Bhd’s RM150 million Medium-Term Notes (IMTN) Programme rating to AA-IS from A+IS and affirmed its RM50 million Commercial Papers (ICP) Programme rating at MARC-1IS. The ratings outlook is stable.

The rating assessment on TSH Sukuk Murabahah is based on the strength of its parent TSH Resources Berhad (TSH) which has provided an irrevocable and unconditional undertaking to meet the purchase obligations of its subsidiary under the sukuk transaction structure.

Rationale     
The rating upgrade is premised on TSH’s improved credit profile that has been aided by strong cash flow generation on the back of high crude palm oil (CPO) prices in recent periods and stronger balance sheet from reduced borrowings and higher liquidity. 

TSH recorded an average CPO price of RM3,570/MT in 2021 (2020: RM2,453/MT), boosting group revenue by 28.4% y-o-y to RM1.2 billion and operating profit by 72.1% y-o-y to RM240.3 million. With cash flow from operations (CFO) of RM393.4 million, CFO interest and debt coverages rose to 9.6x and 0.3x (2020: 5.0x; 0.1x). Group borrowings declined to RM1.1 billion as at end-2021 from RM1.3 billion at end-2020, translating to an improved gross debt-to-equity (DE) ratio and net DE of 0.61x and 0.45x (2020: 0.82x; 0.71x). TSH has projected its gross DE ratio to reduce further to about 0.50x over the near term as proceeds of RM248.0 million from the disposal of a combined 3,007 ha of oil palm plantations and a palm oil mill in Sabah will be utilised to pare down borrowings. MARC Ratings, however, did not consider this factor in its appraisal to upgrade TSH’s long-term rating. 

Total planted area stood at 42,495 ha at end-2021, mainly in Kalimantan, of which about 45% comprises prime age trees and about 38% of young mature trees which will enter prime age over the next five to six years. MARC Ratings expects TSH’s tree maturity profile to continue to be supportive of fresh fruit bunch (FFB) production, which rose by 1.4% y-o-y to 918,986 MT in 2021. Its FFB yield of 22.7 MT/ha remains strong relative to many of its peers.

TSH remains exposed to cross-border risks given its sizeable planted area in Indonesia which has recently increased its maximum CPO export levy from USD175/MT to USD375/MT effective March 18, 2022. This would continue to lower TSH’s operating profit as the group would not be able to fully realise the benefit of the current strong CPO prices. TSH maintains a moderate capex programme, budgeting about RM70.9 million in 2022 mainly comprising fixed asset replacements.

The total notes outstanding are RM150.0 million under the IMTN programme and RM50.0 million under the ICP programme as at end-2021.

Rating outlook     
The stable outlook reflects our expectations that TSH will continue to maintain its financial metrics particularly earnings generation and leverage position to be commensurate with the rating band, in line with the management’s prudent approach to manage cash flow generation and its capital requirement.

Rating trajectory

Upside scenario     
No upside to the ratings and/or outlook is envisaged over the next 12 months. On a longer term, sustained improvement in credit metrics, in particular CFO debt and interest coverages of above 0.6x and 5.0x, would support a reassessment of the rating.

Downside scenario     
The ratings and/or outlook could come under pressure if the financial performance deteriorates substantially and/or if borrowings increase such that leverage position weakens.

Key strengths
Strong earnings generation 
Improved leverage position
Favourable maturity profile of oil palm trees supportive of FFB yield

Key risks
CPO price volatility
Susceptibility to ESG concerns


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