MARC Ratings has affirmed TSH Sukuk Murabahah Sdn Bhd’s RM150 million Islamic Medium-Term Notes Programme rating at AA-IS with a stable outlook. TSH Sukuk Murabahah is the funding vehicle for TSH Resources Berhad (TSH) which has provided an irrevocable and unconditional undertaking to meet the purchase obligations of its subsidiary.
TSH’s favourable maturity profile of oil palm trees, stable earnings generation, and improved balance sheet are key rating drivers. These strengths are moderated by the group’s exposure to the inherent volatility of crude palm oil (CPO) prices and cross-border risk with over 90% of its plantation located in Indonesia.
TSH is a mid-sized plantation group with a total planted area of 38,927 ha, comprising 87% of prime age trees and 5% of young mature trees as at end-2024 (2023: 74%, 17%). The group’s fresh fruit bunch (FFB) production, however, declined to 795,002 MT in 2024 (2023: 905,437 MT) due to a temporary disruption in FFB harvesting and processing activities arising from a dispute with smallholders at its estate in Sumatera, Indonesia, in 3Q2024. The lower production in the year resulted in a reduced yield of 21.1 MT/ha in 2024 (2023: 24.1 MT/ha). The dispute pertains to an alleged non-compliance with requirements under Indonesia’s Plasma Programme by smallholders. It was resolved in November 2024 with the Indonesian Administrative Court ruling the Plasma Programme requirement as inapplicable as it applies only to plantation permits issued from 2007 onwards. Following this, the FFB harvesting and processing have resumed.
TSH’s favourable tree maturity distribution, reflected by a larger proportion of prime age trees, would support a higher FFB yield over the medium term, reverting to an annual yield of around 24.0 MT/ha. The lower production notwithstanding, TSH’s FFB yield remained strong in comparison with many of its peers, reflecting TSH’s moderate scale of operations that enables stronger efficiency in terms of deploying resources and implementing plantation management initiatives. The group has earmarked replanting and new planting capex of RM131.2 million in 2025 (2024: RM10.3 million) for its Indonesian plantation.
Group revenue remained stable at RM1.0 billion in 2024 on account of a higher average CPO selling price of RM3,793/MT (2023: RM3,437/MT), offsetting the impact of lower production. Operating profit remained strong at RM205.1 million, supported by lower expenses and finance costs, providing a higher operating margin of 20.1%. For 1H2025, TSH’s revenue rose by 9.9% y-o-y to RM544.1 million on the back of higher CPO and palm kernel prices at RM3,932/MT and RM3,261/MT (1H2024: RM3,645/MT, RM2,088/MT). Total borrowings remained modest at RM266.4 million as at end-June 2025 (end-December 2024: RM259.7 million), with a gross debt-to-equity ratio of 0.12x. Cash flow from operations was healthy at RM165.1 million, benefitting from the higher CPO prices during 1H2025. Liquidity remained strong with cash and bank balances of RM328.0 million. The group’s performance is expected to improve in 2025 on the back of supportive CPO prices amid anticipated lower supply due to subdued production growth and rising demand for biofuels.
TSH’s recent performance notwithstanding, CPO price volatility can impact cash flows, and TSH remains exposed to cross-border risks given its sizeable plantation areas in Indonesia. Therefore, any regulatory changes pertaining to the palm oil industry including any issue surrounding land matters in that country would pose challenges to the group’s operations. This risk is mitigated by the group’s lengthy operating track record in Indonesia. TSH’s longstanding experience in the Indonesian palm oil industry was further demonstrated in the recent resolution of the plasma scheme dispute in Sumatera.