24-11-2008: TSH to continue 20%-30% dividend policy

by Racheal Lee Mei Nyee

KUALA LUMPUR: TSH Resources Bhd will continue to pay out the minimum of between 20% and 30% of net profits despite the global financial turmoil and lower crude palm oil (CPO) prices, its managing director Datuk Dr Kelvin Tan said.

He said the company’s profit had been less affected compared to other planters by the fall in CPO prices, as its business in palm oil downstream refining and milling raked in stable margins.

“These businesses, together with our palm bio-integration and cocoa businesses, are major sources of our profits, and they are unaffected by the fall in palm oil prices. Thus, the sharp fall in CPO prices will have much less impact on our profitability as compared to other oil palm plantation companies,” Tan said in an email reply to The Edge Financial Daily.

TSH Resources is involved in palm and bio-integration business, wood products business as well as cocoa and vegetable fat. It has eight pieces of leasehold land in Sabah, measuring 11,835.63 acres (4,789.71 hectares) in total, for oil palm plantation.

It has another four parcels of plantation land of 104,234.05 acres in Kalimantan and Sumatra of Indonesia, through its 90%-owned Indonesian subsidiary PT Sarana Prima Multi Niaga, 70%-owned subsidiary PT Teguh Swakarsa Sejahtera and PT Laras Internusa.

Tan said the abolition of the 5% import duty on seven types of fertilisers, announced earlier this month to reduce cost of agriculture inputs, helped to reduce its production cost. The government has subsequently removed import duty on all imported mineral fertilisers.

“Our main focus for the foreseeable future is to expand the oil palm plantation development in Indonesia as we are convinced that the inherent quality and competitiveness of palm oil will assure its long-term profitability and sustainability.”

He added that the company’s oil palm tissue culture laboratory had commenced operations, whereby it would supply high quality planting materials for the group as well as generate additional revenue from outside sales of the demand for tissue cultured ramets (members of a clone).

“Oil palm ramets can potentially increase oil yield per hectare by 50%. We will also continue to roll out its palm bio-integration projects, which utilise palm oil wastes to generate and diversify our income base,” he added.

TSH posted a 3.9% drop in net profit to RM24.6 million In its third quarter ended Sept 30, 2008 (3Q08) from RM25.6 million a year earlier, despite a 35.08% increase in revenue to RM322 million from RM238.4 million.

In its latest research note, Asia Analytica expects TSH to do well in 2008 despite weaker earnings expected in the fourth quarter. With the nine-month net profit of RM84.9 million, the research house said TSH’s net profit was estimated at RM96.7 million in 2008 - slightly up from RM93 million in 2007.

Nevertheless, it said TSH’s earnings would fall sharply next year to about RM47.7 million as CPO prices were expected to remain low for some time and the global credit crisis had severely crimped consumer spending on timber and wood products.

“Dividends too are expected to fall in line with the company’s earnings. Assuming a steady 30% payout, dividends are estimated at seven sen and 3.5 sen per share in 2008 and 2009, respectively. That translates into yields of 4.9% and 2.4% respectively for the two years,” the research house added.