RM42mil fine fails to dent TSH earnings

KUALA LUMPUR: Analysts have upgraded TSH Resources Bhd to "Buy", citing limited earnings and operational impact from the RM42 million administrative fine imposed on its Indonesian subsidiary.

Hong Leong Investment Bank Bhd (HLIB) and RHB Research said the latest clarification on the fine had removed key uncertainties surrounding the affected plantation areas, while the share price reaction to the earlier announcement had made the stock's valuation more attractive.

HLIB maintained its target price at RM1.42, while RHB Research kept its target price at RM1.45.

The fine, imposed on TSH's 90 per cent-owned subsidiary Sarana Prima Multi Niaga, amounts to RM42 million and relates to 1,229 hectares of land outside Sarana Prima Hak Guna Usaha (Hak Guna Usaha or Right To Cultivate) area.

Of the affected area, 496.69 hectares were planted before TSH acquired Sarana Prima, while another 732.20 hectares were planted by local communities.

HLIB said the affected land was outside Sarana Pima's HGU and was not included in TSH's reported planted area, meaning there would be no reduction in the group's reported planted hectare.

"Based on our estimate, the administrative fine would reduce our financial year 2026 (FY26) projected core earnings by 22.5 per cent based on TSH's 90 per cent stake in Sarana Prima.

"We consider the fine to be non-core and non-recurring, and hence maintain our core earnings forecasts," the firm said.

RHB Research said there would be no impact on fresh fruit bunches (FFB) production, as output from about 300 hectares of the affected area had already been excluded from the group's production figures, having contributed about 0.8 per cent, or 6,000 tonnes, to FY24 output.

"However, harvesting in this area ceased in FY25 upon the land surrender to the forest area enforcement body Satuan Tugas Penertiban Kawasan Hutan of Indonesia and has since been excluded from production figures.

"Consequently, we see no downside risk to our FY26 FFB output target of 773,000 tonnes, with year-to-date August production at 518,000 tonnes," it added.

The firm maintained its earnings forecasts for TSH, as it expects the potential loss of the affected areas to have a limited impact on FFB production.