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TSH

TSH

$1.21 MYR 1.67B market cap 22 February 2026
TSH Resources Berhad TSH BUFFETT / MUNGER / KLARMAN SUMMARY
1 SNAPSHOT
Price$1.21
Market CapMYR 1.67B
EVMYR 1.60B
Net DebtMYR -71M
Shares1.38B
2 BUSINESS

TSH Resources is a Malaysian palm oil plantation company with 39,000 hectares of prime-age oil palms across Sabah (Malaysia) and Kalimantan/Sumatera (Indonesia). The company grows and processes fresh fruit bunches into crude palm oil and palm kernel through five mills, with additional revenue from a Wilmar JV refinery, biomass/biogas renewable energy, and engineered hardwood flooring exports.

Revenue: MYR 1.02B Organic Growth: -4.4%
3 MOAT NARROW

Asset-based moat from 39,000 Ha of prime-age plantations (weighted avg 13.2 years) that would take 5-7 years to replicate. Integrated mill operations reduce logistics costs. Land scarcity in SE Asia (new plantation development increasingly restricted) gives existing planted land quasi-scarcity value. RSPO certification provides access to sustainability-conscious buyers. 50:50 Wilmar JV captures downstream margins. However, CPO is a commodity - TSH has zero pricing power.

4 MANAGEMENT
CEO: Datuk Kelvin Tan Aik Pen - Executive Chairman (since Sep 2024)

Excellent deleveraging: reduced total debt from MYR 1.3B (2020) to MYR 260M (2024) achieving net cash status. Initiated share buybacks in 2024 (13.2M shares at MYR 1.20-1.25). Conservative dividend policy (5 sen/share FY2024). Rational land disposal (sold non-core Kalimantan land for MYR 457M). Family dynasty with ~52% insider ownership ensures strong alignment.

5 ECONOMICS
17.4% Op Margin
6.8% ROIC
MYR 186.7M FCF
Net Cash Debt/EBITDA
6 VALUATION
FCF/ShareMYR 0.1354
FCF Yield11.2%
DCF RangeMYR 1.70 - 2.20

Base FCF MYR 190M growing 5% for 3 years, 3% for 4 years, 2% for 3 years. Terminal growth 2%. Discount rate 10% reflecting emerging market commodity risk. Bear case uses 0% terminal growth and 8% discount rate. Bull case uses 2.5% terminal growth and 9% discount rate.

7 MUNGER INVERSION -24.6%
Kill Event Severity P() E[Loss]
CPO price collapse below MYR 3,000/MT sustained -40% 15% -6.0%
Indonesian regulatory/land seizure risk -50% 10% -5.0%
EUDR restricts palm oil exports to EU -15% 20% -3.0%
Severe weather disruption (El Nino/La Nina) -12% 25% -3.0%
Social/labor disputes at Indonesian estates -10% 15% -1.5%

Tail Risk: Indonesian government could seize plantation land for industrial zones (precedent: KIKI/KIPI area in North Kalimantan). With 91% of planted area in Indonesia, a hostile regulatory shift could destroy significant value. Combined CPO crash + regulatory seizure is the true tail scenario.

8 KLARMAN LENS
Downside Case

CPO prices fall to MYR 3,000/MT from bumper Indonesian production, EUDR restricts EU exports, new Indonesian government policies increase compliance costs. Revenue drops to MYR 750-800M, net profit falls to MYR 40-60M, stock trades at MYR 0.70-0.80 (0.5x book, 10-15x trough P/E).

Why Market Wrong

Market undervalues the dramatic deleveraging story (MYR 1.3B to net cash in 4 years) and applies a permanent discount for commodity cyclicality. The stock trades at 0.80x book despite net cash, prime-age palms, and consistent 11%+ FCF yields. Indonesia's B40/B45 biodiesel mandate is structurally tightening CPO supply, potentially supporting higher-for-longer prices. The 52% insider ownership means management is incentivized to create value, not extract it.

Why Market Right

Bears are correct that TSH has no pricing power, modest ROE, heavy concentration in Indonesia (regulatory risk), and depends entirely on CPO prices which are cyclical. The 2022 profit spike (MYR 457M from land sales) flatters the track record. Normalized earnings of MYR 80-140M on a MYR 2B equity base is a 4-7% ROE, which doesn't justify premium valuation. Malaysian plantation stocks have been chronic underperformers as a sector.

Catalysts

1. CPO price spike from B40/B45 biodiesel demand or weather-driven supply shortage 2. Increased dividend payout now that balance sheet is de-leveraged 3. Share buyback programme reducing float and supporting EPS 4. New planting programme bearing fruit (literally) in 3-5 years 5. Potential re-rating if EUDR creates premium for RSPO-certified producers

9 VERDICT WAIT
B+ T3 Adaptable
Strong Buy$0.9
Buy$1.05
Sell$1.9

TSH Resources is a well-managed, conservatively financed palm oil producer trading at 0.80x book with an 11% FCF yield and a fortress balance sheet. However, at MYR 1.21, the stock doesn't offer the 25-30% margin of safety that a cyclical commodity stock demands. Accumulate below MYR 1.05 on CPO price weakness or broader market dislocation. The dramatic deleveraging, prime-age palm profile, and 52% insider ownership provide genuine downside protection.

🧠 ULTRATHINK Deep Philosophical Analysis

TSH - Ultrathink Analysis

The Real Question

The real question is not "Is TSH Resources cheap?" -- it clearly is by most metrics. The real question is: Can a commodity producer with no pricing power ever be a good long-term investment, or are we just picking up pennies in front of a CPO price steamroller?

More precisely, we are asking whether the Tan family's stewardship of this business -- their disciplined capital allocation, their willingness to deleverage from RM 1.3 billion of debt to net cash, their 52% ownership stake that aligns their fortune with ours -- is enough to overcome the fundamental limitation that palm oil is palm oil, and TSH cannot charge a premium for theirs.

Buffett would say that a wonderful business is like a toll bridge: you must cross it, and the owner sets the price. TSH is not a toll bridge. It is a farm selling a commodity on a global exchange. The question is whether the farm itself -- its location, its soil, its trees at the perfect age -- is valuable enough to generate acceptable returns even without a toll booth.

Hidden Assumptions

The market assumes:

  1. That TSH's profitability will remain tethered to volatile CPO prices, and that normalizing those prices means normalizing (down) to RM 3,500-3,800/MT.
  2. That Indonesian operations carry a permanent political risk premium that justifies a discount.
  3. That Malaysian plantation stocks, as a group, deserve to trade cheaply because the sector has structurally underperformed for a decade.
  4. That the 2022 profit was a one-off fluke that flatters trailing averages.

We assume:

  1. That Indonesia's B40/B45 biodiesel mandate represents a structural floor under CPO demand. This could be wrong -- the mandate could be rolled back, underfunded, or undercut by cheaper soybean oil.
  2. That palm oil's cost advantage over alternatives (soybean, sunflower, rapeseed) ensures demand resilience. This is probably right but not guaranteed if consumer preferences shift away from palm for environmental reasons.
  3. That the Tan family will continue to allocate capital wisely. This is a human assumption, and humans change. Datuk Kelvin is aging, and the succession question (already triggered by his brother's health-related resignation) is real.
  4. That 13.2-year average palm age means several more years of strong yields. This is biologically sound but assumes no catastrophic weather or disease events.

The most dangerous hidden assumption is that we can time our entry correctly. TSH has traded between RM 0.98 and RM 1.40 over the past two years. The difference between buying at 0.98 and 1.40 is the difference between an 11% and a 7% FCF yield -- both "cheap" by absolute standards but worlds apart in terms of margin of safety.

The Contrarian View

For the bears to be right, the following would all need to be true:

  1. CPO prices revert to the 2018-2019 doldrums (RM 2,000-2,500/MT), driven by a bumper Indonesian crop, reduced biodiesel mandates, and weakening food demand. At those prices, TSH would barely break even -- core PBT could fall to RM 50-70M, and ROE would sink to 2-3%. The stock would be a perennial value trap.

  2. Indonesian regulatory risk materializes -- the government expands its Green Industrial Zone or implements plantation land redistribution policies that directly threaten TSH's 35,584 hectares in Kalimantan and Sumatera. TSH already sold 7,800 Ha in North Kalimantan under pressure; this could happen again at less favorable terms.

  3. The EUDR creates a bifurcated market where RSPO-certified producers don't actually get premium pricing (because the EU simply reduces palm oil imports across the board), while compliance costs eat into margins.

  4. The Tan family's conservative approach becomes a drag -- hoarding cash on the balance sheet instead of paying it out, investing in marginal forestry and hardwood flooring businesses that destroy value, and refusing to list the business at a premium valuation through buyouts or corporate actions that would crystallize value.

If all four of these are true, TSH is worth RM 0.60-0.80 per share and the current price of RM 1.21 represents a trap, not an opportunity. The probability of all four occurring simultaneously is low (perhaps 5-8%), but investors should be honest that in a severe bear case, 40-50% capital loss is plausible for a period.

Simplest Thesis

A family-owned, debt-free palm oil company with 39,000 hectares of prime-age trees, generating an 11% free cash flow yield, trading at 80% of book value, in a world where Indonesia's biodiesel mandates are structurally tightening CPO supply.

Why This Opportunity Exists

The opportunity exists because of a constellation of behavioral and structural factors:

  1. Geographic neglect. TSH is a mid-cap Malaysian stock secondarily listed on SGX. It falls through the cracks -- too small for global institutional investors, too "Southeast Asian" for developed market allocators, too "commodity" for growth investors, and too "plantation" for ESG-sensitive funds. It has virtually no sell-side coverage. This creates structural underpricing.

  2. Commodity taint. The market applies a permanent commodity discount to plantation stocks because of historical volatility. But this discount doesn't differentiate between leveraged operators (who deserve it) and de-leveraged cash generators (who don't). TSH in 2020 (71% net gearing) deserved a commodity discount. TSH in 2024 (net cash) does not -- yet it trades at a similar multiple.

  3. ESG exclusion. Many global funds exclude palm oil producers entirely due to deforestation concerns. This is a blanket exclusion that doesn't distinguish RSPO-certified producers with forest rehabilitation programmes from slash-and-burn operators. TSH actually operates a 95,000 Ha forest rehabilitation concession -- it is arguably a net positive for biodiversity -- yet it gets painted with the same brush.

  4. Recency bias on CPO prices. Investors anchor to the 2018-2019 CPO doldrums and assume those prices are "normal." But the structural landscape has changed: Indonesia's biodiesel mandate alone absorbs 13-16 million MT of CPO annually (vs. ~50 MT total production), labor shortages limit supply growth, and replanting rates are at historical lows (high prices ironically discourage replanting because of opportunity cost).

The mispricing may persist for a while because these structural factors are not going away. But it will correct when: (a) CPO prices stay elevated long enough that investors accept a "higher for longer" narrative, (b) TSH increases dividends to levels that attract income investors, or (c) the share buyback programme meaningfully reduces the float.

What Would Change My Mind

I would abandon this thesis if:

  1. CPO spot prices fall below RM 3,000/MT for two consecutive quarters -- this would indicate the demand/supply balance has shifted against the structural tightness thesis.

  2. Indonesia revokes or materially restricts TSH's land titles -- any loss of more than 5,000 Ha of certificated land would signal an unacceptable regulatory environment.

  3. Core PBT falls below RM 100M for two consecutive years -- this would suggest the business is structurally earning below its cost of capital.

  4. The Tan family sells a significant block of shares (>5% of holdings) without a clear succession reason -- this would break the alignment-of-interest thesis.

  5. Debt rises back above RM 500M without a corresponding acquisition of productive assets -- this would indicate a reversal of the deleveraging discipline that defines the investment case.

  6. FFB yield falls below 18 MT/Ha for two consecutive years -- this would suggest biological aging is outpacing management's agronomic efforts.

Each of these is specific, measurable, and falsifiable. If any two occur simultaneously, the position should be closed regardless of price.

The Soul of This Business

The soul of TSH Resources lives in the soil of Kalimantan.

For 45 years, the Tan family has done one thing exceptionally well: grow things. They started with cocoa in Perak, moved to oil palms in Sabah, expanded to Indonesia, and along the way accumulated nearly 40,000 hectares of some of the most productive agricultural land in Southeast Asia. They also took on a 95,000-hectare forest rehabilitation project -- not because it was profitable, but because they understood that sustainability and longevity are the same thing.

The essential truth about TSH is that it is a patient business in an impatient world. Oil palms take 3-4 years to produce their first harvest and 7-10 years to reach peak yield. You cannot rush the biology. You cannot "disrupt" photosynthesis. The business rewards those who plant well, maintain rigorously, and wait. The Tan family has been waiting for 45 years, and their palms are now at their peak.

This patience is both TSH's greatest strength and its limitation. The strength is that no competitor can shortcut the biology -- 39,000 hectares of prime-age palms represent an advantage that took decades and hundreds of millions of ringgit to build. The limitation is that the business will never "hockey stick" -- growth is literally organic, measured in tons per hectare and ringgit per ton.

The competitive position is more inevitable than fragile, but only within narrow bounds. As long as the world needs vegetable oil (and it will -- 8 billion people must eat), as long as palm oil remains the most efficient oilseed crop by yield per hectare (4-10x more productive than soybean per hectare), and as long as existing planted land becomes scarcer as governments restrict new development -- TSH's assets will retain their value.

The fragility lies in the political dimension. TSH's trees grow in Indonesian soil, and Indonesian soil ultimately belongs to Indonesia. The Tan family controls the planting, the harvesting, and the processing. But they do not control the regulatory framework, the land tenure system, or the political winds that blow through Jakarta and the provincial capitals. This is the eternal vulnerability of any agricultural business operating on foreign soil under sovereign risk.

To invest in TSH is to make a bet that the palm oil's biological efficiency will continue to command global demand, that the Tan family's patience and alignment will continue to compound value, and that Indonesian politics will remain tolerably stable for foreign-linked plantation operators. It is not a bet on disruption or transformation. It is a bet on the enduring value of prime agricultural land, managed well, in a world that needs to feed itself.

That is either a boring investment or a profound one, depending on your time horizon.

Executive Summary

3-Sentence Investment Thesis

TSH Resources is a well-managed, family-controlled Malaysian palm oil plantation company trading at 0.80x book value and 7.1x trailing earnings, with a net cash balance sheet after reducing total debt from RM 1.3 billion (2020) to RM 260 million (2024). The company's 39,000 hectares of prime-age palms (weighted average 13.2 years), 50:50 Wilmar JV refinery, and consistent free cash flow generation of RM 145-350M annually make it an attractive proxy for CPO prices with substantial downside protection from asset backing. However, the commodity-dependent nature of earnings, limited pricing power, regulatory risks (EUDR, Indonesian land policy), and modest single-digit ROE in non-boom years constrain the quality grade, making it a cyclical value play rather than a Buffett-style compounder.

Key Metrics Dashboard

Metric Value Assessment
P/E (TTM) 7.1x Cheap vs. plantation peers (10-14x)
P/B 0.80x Below book value - asset-backed
FCF Yield 11.2% Strong cash generation
ROE (5Y Avg) 10.2% Below Buffett threshold (15%+)
Net Debt/Equity Net Cash Fortress balance sheet
Insider Ownership ~52% High skin in game
Dividend Yield 2.1% Low but growing payout
Core PBT CAGR (5Y) 13.0% Respectable growth

Verdict

WAIT - Accumulate below RM 1.05 (P/B 0.71x, ~9x trough earnings) for a margin of safety. At current prices (RM 1.21), TSH is reasonably valued but not offering the 30%+ discount to intrinsic value that a commodity-cyclical stock demands. The stock is attractive on a pullback driven by CPO price weakness.

Phase 0: Business Understanding

What Does TSH Do?

TSH Resources Berhad is principally an upstream palm oil plantation group. Founded in 1979 as a cocoa business by Datuk Kelvin Tan Aik Pen, the company pivoted to oil palm in the 1990s and has since become one of Malaysia's mid-tier plantation companies. (AR 2024, p.10)

Revenue Breakdown (FY2024):

  • Palm Products: RM 966.5M (94.8% of revenue) - cultivation of oil palms and processing of FFB into CPO and PK
  • Others: RM 53.3M (5.2%) - Renewable energy (biomass/biogas), engineered hardwood flooring (Ekowood)

Geographic Breakdown:

  • Indonesia: RM 668M (65.5%)
  • Malaysia: RM 327M (32.1%)
  • USA/Other: RM 24.7M (2.4%)

Plantation Assets (31 Dec 2024, AR p.14-16):

  • Total planted area: 38,927 Ha
    • Sabah, Malaysia: 3,343 Ha (matured 3,200, immature 143)
    • Indonesia (Kalimantan + Sumatera): 35,584 Ha (matured 34,399, immature 1,185)
  • Weighted average palm age: 13.2 years (peak productivity is 7-18 years)
  • FFB production: 795,002 MT (FY2024), down from 905,437 MT (FY2023) due to biological yield cycles + social dispute
  • Yield: 21.1 MT/Ha (2024) vs 24.1 MT/Ha (2023)
  • 5 palm oil mills (1 Sabah, 2 Kalimantan, 2 Sumatera)

Other Notable Assets:

  • 50:50 JV with Wilmar International for palm oil refinery and PK crushing in Sabah
  • 14 MW biomass cogeneration plant (first in Malaysia connected to grid)
  • 3 MW biogas power plant
  • 100-year forest concession: 95,010 Ha in Ulu Tungud, Sabah (FMU 4) - forest rehabilitation
  • Ekowood International: engineered hardwood flooring, export to US/Europe/Australia

How Does TSH Make Money?

TSH is fundamentally a price-taker in the global CPO market. The company:

  1. Grows oil palms on owned/leased plantations in Sabah and Indonesia
  2. Harvests Fresh Fruit Bunches (FFB)
  3. Processes FFB in its own mills to produce CPO and Palm Kernel
  4. Sells CPO/PK at prevailing market prices (benchmark: Bursa Malaysia Derivatives CPO futures)
  5. Additional margin from refinery JV with Wilmar (downstream processing)
  6. Small revenue from biomass/biogas electricity and hardwood flooring

The profitability lever is primarily CPO price x production volume - cost of production. Management has limited ability to influence prices, making operational efficiency (yield/Ha, extraction rates, cost control) the primary value driver.

Phase 1: Risk Analysis (Inversion - "How Could This Investment Fail?")

Top Risks Register

# Risk Probability Severity Expected Loss Mitigation
1 CPO price collapse (<RM 3,000/MT sustained) 15% -40% -6.0% Net cash position, low-cost producer
2 Indonesian regulatory/land seizure risk 10% -50% -5.0% 90%+ of Indo land certificated
3 EU Deforestation Regulation (EUDR) restricting exports 20% -15% -3.0% RSPO certified, mostly domestic/Asia sales
4 Weather disruption (El Nino/La Nina) 25% -12% -3.0% Geographic diversification
5 Social/labor disputes at Indonesian estates 15% -10% -1.5% Resolved Nov 2024 dispute, improved practices
6 Currency risk (IDR weakening vs MYR) 20% -8% -1.6% Natural hedge (revenue in IDR too)
7 Aging palm profile beyond peak (post-2030) 10% -20% -2.0% New planting programme underway
8 Key person risk (Datuk Kelvin Tan) 5% -15% -0.75% Family succession (brothers involved)
9 Competition for FFB from rival mills 15% -5% -0.75% Own production increasing
10 Biodiesel policy changes in Indonesia 10% -10% -1.0% Diversification across markets
Total Expected Downside -24.6%

Bear Case Scenario

In the worst case, CPO prices drop to RM 3,000/MT (from current ~RM 4,100), Indonesian estates face regulatory complications under the new government, EUDR implementation reduces European demand for palm oil, and weather disruptions reduce yields further. In this scenario:

  • Revenue could fall to RM 750-800M
  • Net profit could drop to RM 40-60M (EPS: 3-4 sen)
  • Stock could trade at RM 0.70-0.80 (10-15x trough earnings, 0.5x book)
  • Downside from current: ~35-40%

Tail Risk: Indonesia's government has signaled willingness to seize plantation land for its Green Industrial Zone in North Kalimantan. While TSH's BCAP subsidiary already sold 7,817 Ha of land in that area (2022-2023), further regulatory actions could affect remaining Indonesian operations. This is a non-trivial risk given ~91% of planted area is in Indonesia.

Phase 2: Financial Analysis

Profitability & Returns

Revenue Trajectory:

  • 5-Year Revenue CAGR (2020-2024): +2.4% (modest, reflecting CPO price cycles)
  • Revenue peaked at RM 1.31B in 2022 during CPO price boom
  • Normalized revenue (2023-2024): ~RM 1.0-1.07B

Profitability Analysis:

Metric 2020 2021 2022 2023 2024 5Y Avg
Gross Margin 35.4% 40.3% 38.8% 37.3% 37.5% 37.9%
Operating Margin 11.1% 17.6% 13.3% 15.4% 17.4% 15.0%
Net Margin 8.6% 14.2% 34.9% 8.9% 13.3% 16.0%
Core PBT Margin 13.9% 22.4% 19.7% 17.1% 23.3% 19.3%
ROE 5.47% 10.32% 24.01% 4.65% 6.77% 10.2%
ROA 2.51% 5.12% 15.42% 3.34% 4.94% 6.3%

Note: 2022 net margin inflated by RM 457M land disposal gain

Core Profitability Assessment:

  • Core PBT (excluding one-offs) grew from RM 129M (2020) to RM 237M (2024), a solid 13% CAGR
  • Gross margins consistently in 35-40% range - reasonable for an upstream plantation
  • The screening metric of 32.4% operating margin appears to use core PBT/revenue, which tracks
  • ROE averages 10.2% over 5 years - below the Buffett 15% threshold, even excluding 2022 anomaly
  • However, ROE is depressed by massive equity base (RM 2.0B) relative to earnings

DuPont Decomposition (FY2024):

  • Net Margin: 13.3%
  • Asset Turnover: 0.37x (low - typical for asset-heavy plantations)
  • Equity Multiplier: 1.22x (very low leverage)
  • ROE = 13.3% x 0.37 x 1.22 = 6.0%

The low ROE is structural - plantation companies carry massive biological/land assets relative to earnings. The company's conservative leverage (near net cash) further compresses ROE. This is not necessarily bad - it means TSH prioritizes financial safety over equity returns.

Balance Sheet Strength

Debt Reduction Story (RM M):

Year Total Borrowings Cash + ST Funds Net Debt Net D/E
2020 1,309 148 1,161 71.0%
2021 1,109 280 829 44.8%
2022 559 376 183 8.3%
2023 302 255 47 2.0%
2024 260 266 Net Cash 0%

This is one of the most impressive deleveraging stories in the Malaysian plantation sector. TSH reduced debt by RM 1.05 billion in 4 years, going from 71% net gearing to net cash. This was achieved through:

  1. Strong operating cash flows (RM 234-393M/year)
  2. Land disposal proceeds from BCAP (RM 457M)
  3. Disciplined capital allocation

Current Balance Sheet (31 Dec 2024):

  • Total Equity: RM 2,261M (of which RM 2,004M attributable to owners)
  • Total Debt: RM 260M (59M long-term, 201M short-term)
  • Cash + ST Funds: RM 266M
  • Investment Securities: RM 65M
  • Net position: Net cash of RM 71M
  • Interest coverage: 17.5x (PBT / finance costs)

Asset Backing:

  • NAV per share: RM 1.47 (stock trades at 0.82x NAV)
  • Biological assets: RM 387M (oil palm trees)
  • PPE: RM 1,338M (mills, land, machinery)
  • Investments in associates + JVs: RM 196M
  • Forest concession (FMU 4): 95,010 Ha - not fully reflected in book value

Verdict: Financial fortress. The balance sheet is among the strongest in the sector.

Owner Earnings / Free Cash Flow

Using Buffett's owner earnings concept:

Owner Earnings (FY2024):

  • Net Profit: RM 158M
  • Add: Depreciation & Amortization: ~RM 118M (EBITDA - EBIT proxy)
  • Less: Maintenance CapEx: ~(RM 54M)
  • Owner Earnings: ~RM 222M

FCF Analysis (5-Year):

Metric (RM M) 2020 2021 2022 2023 2024 Average
Operating CF 234.5 393.4 207.7 226.7 240.6 260.6
CapEx (53.7) (45.2) (63.4) (59.4) (54.0) (55.1)
FCF 180.8 348.2 144.3 167.3 186.7 205.5
FCF/Revenue 19.5% 29.3% 11.0% 15.7% 18.3% 18.8%
FCF/Market Cap 10.8% 20.8% 8.6% 10.0% 11.2% 12.3%

The company generates consistent, strong free cash flow - averaging RM 206M/year over 5 years. At the current market cap of RM 1,672M, that implies a 12.3% average FCF yield. This is exceptional.

Valuation

1. Asset-Based Valuation (P/B):

  • NAV per share: RM 1.47
  • Current Price: RM 1.21
  • Discount to NAV: 17.7%
  • Plantation land in Kalimantan likely worth more than book - Indonesian land prices have appreciated significantly
  • FMU 4 forest concession (95,010 Ha) carries minimal book value but has option value

2. Earnings-Based Valuation (P/E):

  • Trailing EPS: 9.83 sen (FY2024)
  • Normalized EPS (excl. 2022 anomaly, 4Y avg 2020-2024 ex-2022): ~8.1 sen
  • Current P/E: 12.3x on trailing, 14.9x on normalized
  • Wait, let me recalculate: 2020: 5.76, 2021: 12.27, 2023: 6.89, 2024: 9.83 => average: 8.69 sen
  • At RM 1.21, trailing P/E = 12.3x, normalized P/E = 13.9x

Actually, using the most recent core PBT trend: Core PBT of RM 237M implies core earnings of ~RM 170M (at 28% tax), or EPS of ~12.3 sen. P/Core-E = 9.8x. This is more meaningful for a cyclical company.

3. FCF-Based Valuation:

  • Average FCF: RM 206M/year
  • At 10% discount rate, perpetuity value: RM 2,060M
  • Per share: RM 1.51
  • Current price discount: 20%
  • With 3% growth: RM 2,943M, or RM 2.15/share (44% upside)

4. Peer Comparison:

Company P/E P/B Div Yield ROE
TSH Resources 7.1x 0.80x 2.1% 6.8%
IOI Corp 14.2x 1.8x 2.5% 12.8%
KL Kepong 13.5x 1.5x 3.2% 11.2%
Sime Darby Plant. 16.0x 1.2x 4.0% 7.5%
First Resources 8.5x 1.1x 5.5% 13.0%

TSH trades at a significant discount to Malaysian plantation peers but closer to Indonesian-focused peers like First Resources. The discount reflects: (1) smaller size, (2) less liquid trading, (3) heavy Indonesia exposure, (4) lower ROE.

5. DCF Valuation (Explicit Assumptions):

Assumptions:

  • Base FCF: RM 190M (conservative, below 5Y average)
  • Years 1-3 growth: 5% (new planting, CPO price recovery)
  • Years 4-7 growth: 3% (maturation of young palms)
  • Years 8-10 growth: 2% (inflation only)
  • Terminal growth: 2%
  • Discount rate (WACC): 10% (reflecting emerging market/commodity risk)
Year FCF (RM M)
1 200
2 210
3 220
4 227
5 234
6 241
7 248
8 253
9 258
10 263
Terminal 3,353

PV of FCFs (Years 1-10): RM 1,593M PV of Terminal Value: RM 1,293M Enterprise Value: RM 2,886M Less: Net Debt: (RM 71M) i.e., add net cash Equity Value: RM 2,957M Per Share: RM 2.17

DCF Fair Value Range: RM 1.70 - 2.20 per share

  • Bear case (8% discount, 0% terminal growth): RM 1.70
  • Base case (10% discount, 2% terminal growth): RM 2.17
  • Bull case (9% discount, 2.5% terminal growth): RM 2.60

Current Price RM 1.21 implies a 30-44% discount to DCF fair value.

Phase 3: Moat Analysis

Moat Sources Assessment

Moat Type Present? Strength Evidence
Cost Advantage Partial Moderate Indonesian operations have lower labor costs; mature palms at peak yield; own mills reduce processing costs
Switching Costs No None CPO is a commodity; buyers can switch easily
Network Effects No None Not applicable
Brand/Pricing Power No None Commodity product - price taker
Efficient Scale Partial Weak Mills serve own plantations + nearby smallholders; geographic proximity matters
Regulatory/Concession Partial Moderate 100-year forest concession (FMU 4); RSPO certification creates some buyer preference
Asset Moat Yes Moderate 39,000 Ha of prime-age plantations; land acquisition increasingly difficult in Indonesia

Moat Rating: NARROW (leaning toward NONE)

Why not WIDE: TSH is a commodity producer with no pricing power. Palm oil is fungible - a buyer doesn't care if it comes from TSH or any other producer. Margins are primarily driven by CPO market prices and production costs, not by any structural competitive advantage.

Why NARROW (not NONE):

  1. Asset quality: 39,000 Ha of prime-age palms at 13.2 years weighted average - this is the sweet spot for production. Replicating this would take 5-7 years.
  2. Integrated operations: Own mills adjacent to plantations reduce logistics costs. The Wilmar JV adds downstream margin capture.
  3. Land scarcity: New plantation development is increasingly restricted in Malaysia (no new conversions) and Indonesia (moratorium areas). Existing planted land is a quasi-depleting asset.
  4. Cost position: TSH's cost of production benefits from mature Indonesian operations where labor is cheaper and yield/Ha is high.
  5. RSPO certification: Provides access to premium sustainability-conscious buyers, particularly as EUDR approaches.

Moat Durability: 10-15 years. Palm trees have a 25-year economic life, and TSH's young-to-prime profile ensures good yields through mid-2030s. However, without replanting, yields will eventually decline.

Phase 4: Decision Synthesis

Management Assessment

Datuk Kelvin Tan Aik Pen (Executive Chairman since Sep 2024, previously Non-Executive Chairman):

  • Co-founded the business in 1977 as cocoa trader
  • Built TSH from a cocoa company to a major plantation group over 40+ years
  • Holds 342.7M shares (24.8% of issued capital) - massive skin in game
  • Redesignated from NE Chairman to Executive Chairman in Sep 2024 after his brother (Tan Aik Sim, previous MD) resigned for health reasons
  • Brother Tan Aik Kiong serves as Group Executive Director (4.2% stake)

Capital Allocation Track Record:

  • Excellent debt reduction: RM 1.3B to RM 260M in 4 years
  • Share buybacks: Initiated in 2024 (13.2M shares at RM 1.20-1.25)
  • Dividend policy: Conservative but growing (total 5 sen/share in FY2024)
  • Growth capex: Modest new planting programme to expand planted area
  • Land disposal: Rational - sold non-core land at good prices to KIKI/KIPI
  • Financial investments: RM 65M in bond securities and investment funds

Assessment: Management scores well on capital allocation and alignment of interests. The Tan family's ~30% direct stake ensures long-term orientation. The transition from Tan Aik Sim to Datuk Kelvin as executive chairman is a succession risk, but the family dynasty approach provides continuity. Conservative financial management (near-zero gearing) is prudent for a cyclical commodity business.

Quality Assessment

Criterion Pass/Fail Notes
Simple, understandable business PASS Grow palm oil, sell palm oil
Profitable 10+ consecutive years PASS Profitable every year 2015-2024
Consistent free cash flow PASS Positive FCF every year 2020-2024
ROE > 15% FAIL 5Y avg 10.2%, only exceeded in 2022 boom
Manageable debt (D/E < 0.5) PASS Net cash position
Management skin in game PASS ~52% insider ownership
Identifiable moat PARTIAL Narrow moat from asset quality, not pricing power

Quality Grade: B+ (Tier 3 - Adaptable)

  • Strong on balance sheet, cash flow, management alignment
  • Weak on returns (ROE), moat width, commodity dependence

Expected Return Probability Tree

Scenario Probability Price Target Return
Bull (CPO >RM 4,500, new planting drives growth) 25% RM 1.80 +49%
Base (CPO RM 3,800-4,200, steady operations) 45% RM 1.40 +16%
Mild Bear (CPO RM 3,200-3,800, flat production) 20% RM 1.00 -17%
Severe Bear (CPO <RM 3,200, regulatory issues) 10% RM 0.70 -42%
Expected Return +10.5%

Adding dividend yield of ~2%, total expected return: ~12.5%/year.

Position Sizing

Using Kelly Criterion approximation:

  • Win probability: 70% (bull + base cases)
  • Average win: ~25%
  • Loss probability: 30%
  • Average loss: ~25%
  • Kelly fraction: (0.70 x 25% - 0.30 x 25%) / 25% = 40%
  • Half-Kelly (conservative): 20%

Recommended allocation: 2-4% of portfolio (reflecting commodity risk, single-country exposure, lower quality grade)

Monitoring Thresholds

Metric Green Amber Red (Sell Trigger)
CPO Price (RM/MT) >4,000 3,200-4,000 <3,200 sustained
FFB Production (MT) >850K 700-850K <700K
Net Debt/Equity <10% 10-30% >30%
Core PBT (RM M) >200 100-200 <100
Insider Ownership >40% 30-40% <30%
Dividend/share (sen) >5 2.5-5 0

Entry Strategy

Action Price (RM) P/E (Core) P/B Rationale
Strong Buy 0.90 7.3x 0.61x >35% below DCF fair value
Accumulate 1.05 8.5x 0.71x ~25% below fair value, good margin of safety
Hold 1.21 9.8x 0.82x Fair value for commodity cyclical
Reduce 1.60 13.0x 1.09x Approaching full valuation
Sell 1.90 15.4x 1.29x Priced for perfection

Current Assessment: At RM 1.21, TSH is in the "Hold" zone. It offers decent value but not the margin of safety required for a new position in a cyclical commodity stock. Wait for a CPO price dip or broader market weakness to create an entry below RM 1.05.

Appendix: Key Assumptions & Limitations

  1. CPO price assumption: Base case assumes RM 3,800-4,200/MT average over next 3 years. A structural shift higher (B40/B45 biodiesel) or lower (bumper crops) would materially change the thesis.
  2. Indonesian regulatory risk: Assumed manageable given TSH's certificated land and RSPO compliance. A hostile regulatory environment could be worse than modeled.
  3. Currency: Analysis in MYR. SGX-listed shares trade in SGD and are subject to MYR/SGD exchange rate.
  4. Data limitations: AlphaVantage and EODHD do not cover this stock. Financial data cross-referenced between annual reports and financial aggregators (StockAnalysis.com, KLSEScreener, MarketScreener, i3investor).
  5. Valuation discount: Part of TSH's valuation discount likely reflects illiquidity (small-mid cap, dual listing, limited foreign institutional interest).

Sources: TSH Resources Berhad Annual Reports 2020-2024; StockAnalysis.com; KLSEScreener; MarketScreener; i3investor; MPOB; TradingEconomics; company IR website (tsh.com.my)