MARC Ratings has affirmed its rating of AA-_IS  on TSH Sukuk Murabahah Sdn Bhd’s RM150 million Medium-Term Notes (IMTN) Programme with a stable outlook. The total outstanding stood at RM90 million as at end-March 2023, with the maturity date on June 16, 2023.

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.

The rating affirmation is driven by TSH’s strong cash flow generation on the back of higher fresh fruit bunches (FFB) output and stronger average crude palm oil (CPO) price during 2022 that have led to a strong balance sheet. The average CPO price rose to RM4,100/MT (2021: RM3,570/MT). The rating is mainly moderated by the group’s susceptibility to commodity price volatility and exposure to cross-border risk as a sizeable proportion of its plantation is in Kalimantan.

Following the disposal of oil palm estates in Sabah and Kalimantan which were completed in 2022, TSH's total planted area declined to 39,071 ha as at end-2022 from 42,495 ha in 2021. TSH’s total planted area comprises a healthy tree maturity profile, of which about 59% comprises prime age trees and about 32% 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 FFB production and FFB yield, which rose to 923,990 MT and 24.5 MT/ha in 2022 (2021: 918,986 MT; 22.7 MT/ha). MARC Ratings notes that the FFB yield remains strong relative to that of many of its peers. 

TSH remains exposed to cross-border risks given its sizeable planted area in Indonesia. Any regulatory changes pertaining to the palm oil industry in that country will pose challenges to TSH’s operations. Notwithstanding this, the group’s lengthy operating track record in Indonesia helps mitigate this risk. TSH maintains a moderate capex programme, budgeting about RM99.4 million in 2023 mainly comprising fixed asset replacements, infrastructure, and new plant and machinery.

In 2022, group revenue rose by 9.8% y-o-y to RM1.3 billion; however, profit before tax (PBT) was higher at RM557.3 million (2021: RM254.1 million). This relates to the sale of oil palm estates of 3,007 ha and a mill in Sabah as well as 7,817 ha of land parcels in Kalimantan. The proceeds were utilised to reduce group borrowings to RM559.1 million from RM1.1 billion at end-2021, translating to an improved gross debt-to-equity (DE) ratio and net DE of 0.26x and 0.08x (2021: 0.61x; 0.45x). Cash and bank balance of RM382.0 million as at end-2022 are sufficient to meet the final repayment of RM90 million under the rated programme due on June 16, 2023.

The stable outlook reflects MARC Ratings’ expectation that TSH will continue to maintain its financial metrics.

Any rating and/or outlook upgrade would be guided by a sustained improvement in group performance and credit metrics, while maintaining a moderate leverage position.