Tuesday, Apr 05, 2022
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. TSH Sukuk Murabahah is the funding vehicle for parent TSH Resources Berhad (TSH) which has provided an irrevocable and unconditional undertaking to meet the purchase obligations of its subsidiary.
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 73.8% y-o-y to RM253.0 million. With cash flow from operations (CFO) of RM393.6 million, CFO interest and debt coverages rose to 9.7x 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 22.8 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.
Contacts:
Cyndy Goh, +603-2717 2941 / cyndy@marc.com.my
Lim Wooi Loon, +603-2717 2943 / wooiloon@marc.com.my
Taufiq Kamal, +603-2717 2951 / taufiq@marc.com.my