MARC has affirmed TSH Sukuk Murabahah Sdn Bhd’s RM150 million Medium Term Notes (IMTN) programme rating at A+_IS and concurrently upgraded its RM50 million Sukuk Murabahah Commercial Papers (ICP) programme rating to MARC-1_IS from MARC-2_IS. The rating agency has also affirmed TSH Sukuk Ijarah Sdn Bhd’s RM300 million IMTN programme rating at A+_IS. The ratings outlook is stable. 

TSH Sukuk Murabahah and TSH Sukuk Ijarah are funding vehicles of TSH Resources Bhd (TSH) which has provided an irrevocable and unconditional undertaking to meet the financial obligations of both subsidiaries. The affirmed long-term ratings reflect TSH’s large palm oil acreage under cultivation and favourable tree maturity profile that have been, and would be, supportive of cash flow generation. The ratings also factor the group’s longstanding experience in oil palm cultivation that has helped mitigate the ongoing challenges in the palm oil industry. The ratings remain moderated by the volatility of crude palm oil (CPO) price and cross-border risk given that its plantations are mainly in Indonesia.

MARC notes that TSH has taken efforts to improve the group’s liquidity position by lengthening its maturity profile and managing its working capital requirement, thereby mitigating near-term liquidity risk. These factors were considered in upgrading TSH’s short-term rating to MARC-1IS. 

About 39.3% of TSH’s total planted area of 42,109 ha comprises prime age trees as at end-2019, while about 48.2% comprises immature and young matured trees. This implies that its fresh fruit bunch (FFB) production, which rose by 4.2% y-o-y to 893,738 MT in 2019, will be well supported by an increasing number of trees entering prime age over the medium term. For 1Q2020, TSH recorded higher revenue and operating profit y-o-y of RM257.4 million and RM57.7 million, mainly on higher average CPO selling price of RM2,599/MT (2019: RM1,995/MT). Free cash flow remained positive at RM68.9 million (2019: RM68.5 million). Although CPO prices remain volatile, the rating agency expects CPO price to be higher in 2020 than in the previous year. As borrowing levels are also expected to remain flat at around RM1.45 billion (at end-March 2020) and given the projected lower capital spending, TSH’s financial metrics are expected to strengthen in 2020. 

The stable outlook reflects MARC’s expectation that the group will maintain its credit profile by adhering to a disciplined approach to manage cash flow generation and its capital requirement. The long-term rating outlook could be upgraded if there is a meaningful improvement in its debt metrics, particularly its leverage ratio. 

Lim Wooi Loon, +603-2717 2943/ wooiloon@marc.com.my; 

Taufiq Kamal, +603-2717 2951/ taufiq@marc.com.my