KUALA LUMPUR (Sept 28): TSH Resources Bhd (KL:TSH) extended its decline on Monday after the plantation firm’s Indonesian subsidiary was slapped with a RM42 million administrative fine.
The fine could shave more than 20% off TSH Resources’ projected earnings for the current financial year, according to analyst’ estimates. However, the bigger risk is whether the Indonesian authorities could require the company to surrender productive land and future earnings.
“We expect small negative knee-jerk share price reaction from this announcement,” Maybank Investment Bank said.
The stock fell as much as 13 sen or 9.5% to RM1.24, its lowest since Aug 21. TSH Resources was trading at RM1.28 at 9.30am, adding to Friday’s over 4% loss.
The fine on TSH Resources’s 90%-owned indirect Indonesian subsidiary PT Sarana Prima Multi Niaga by Indonesia's Forest Area Enforcement Task Force appears to be part of broader enforcement programme against plantation companies operating within forest areas.
The reason for the fine was not disclosed by TSH Resources, though similar administrative fines having previously been imposed on several other plantation companies.
Sarana Prima operates about 7,000 hectares of oil palm plantations and a palm oil mill in Central Kalimantan, accounting for about 18% of TSH Resources’ planted area. Indonesia accounts for more than 90% of TSH Resources’ planted area.
“We view the development negatively given the material cash outflow and uncertainty over the underlying compliance issue,” BIMB Securities said, noting that the fine highlights TSH Resources’ exposure to Indonesian forestry and land-use regulatory risk.
Further, TSH Resources “may potentially be required to relinquish overlapping land” to the Indonesian government, Hong Leong Investment Bank cautioned, as such a move could lead to asset write-downs and loss of future earnings from the relinquished land.
The research house downgraded TSH Resources to "hold".
The stock now has only one "buy" call out of eight research houses tracked by Bloomberg while six have "buy" and one has "sell" calls. The average 12-month target price is RM1.43.