Eh? What's a disclaimer?

Sometimes I wonder what's the point of the professionals putting a disclaimer in their financial research reports.

At the end of most reports, these professionals would put in some sort of disclaimer and the following is a typical disclaimer one would see from a brokerage house like OSK.

• The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein.

Remember the blog posting Update on TSH?

In that posting I enclosed the earnings table OSK had posted in their report after TSH reported their earnings.

And this was remarked by OSK.

• Just a hiccup! Net profit of RM29.7m was 34.1% and 28.7% below consensus and our forecast respectively. This is predominantly due to a write back in tax credit amounting to RM8.9m (being reinvestment allowance realised in FY04) after the company has now been granted a 10 year pioneer status for its biomass subsidiary commencing FY04.

Now OSK posted their 4Q 2005 earnings report card today ( click here ).

In it, they had a small table on TSH.

Waa... can you see that OSK forecast for TSH was 41.7 million.
And TSH missed by a mere 7.4%?

Hmmm... i wonder who just said... " Just a hiccup! Net profit of RM29.7m was 34.1% and 28.7% below consensus and our forecast respectively. "

Hmm.... so I wonder.... what was said in their disclaimer

Oh...

The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change without notice....

Update on TSH Resources

I made a blog entry on TSH Resources before in which I highlighted the amazing manner OSK recommended a buy on this stock.

Here is the very bottom-line of what had happened.

I am sure if an OSK subscriber that follows the buy recommendation won't be too happy.
Just in Aug 2005, TSH was @ 1.74 with a buy and a target price of 2.19.
Now in Jan 2006, TSH is @ 1.47 with a buy and a target price of 1.78.

TSH was trading at a price of 1.40 the other day when it made its 2005 Q4 earnings.

And the very same analysis who had made all those calls, dared to remark in the following manner.

• Just a hiccup! Net profit of RM29.7m was 34.1% and 28.7% below consensus and our forecast respectively. This is predominantly due to a write back in tax credit amounting to RM8.9m (being reinvestment allowance realised in FY04) after the company has now been granted a 10 year pioneer status for its biomass subsidiary commencing FY04.

My issue with that analysis is if an OSK subscriber had followed the recommendation, I'm pretty sure that they would not be too happy at all with what had happened to the stock price since the recommendation. And worse of all, the stock performed way below OSK forecast.

Let me repeat what I posted again.

On Aug 25 2005, TSH announced its earnings and OSK mentioned that 'its earning was 36.8% below market and our estimates'. Now the very problem was OSK forecasted a shocking 61 million net earnings for TSH. (Ah.. the higher the profit estimate, the cheaper the stock would appear... hence the juicier the BUY recommendation!). Now since TSH is going to miss the forecast earnings by a lot, OSK quickly readjusted TSH earnings to just 55.7 million.

Price of TSH then was 1.74. OSK target price was 2.19.

On Nov 25 2005, TSH announced its earnings. Total year-to-date 3 quarters net earnings for fiscal year 2005 was only 28.253 million. One more quarter left and OSK had expected TSH to earn some 55.7 million. And obviously this was getting really embarrassing. And what OSK did next was even worse. The earnings forecast were no longer to be found (not sure if it was my browser) and instead OSK still insisted it was a buy. It said 'We reiterate our BUY recommendation with a 12-month target at RM1.78 based on sum of parts methodology."

Sooooo....... price of TSH was now at 1.47. And OSK was calling a buy based on sum-of-parts (meh leh ka?) on TSH with a target price of 1.78!!!

Now if one puts those two past events into perspective... wasn't it disgusting that OSK is now saying it is a mere hiccup? And even more disgusting was how OSK said TSH performed just 28.7% below their estimates!!!! Why couldn't they admit their past overly optimistic earnings forecasts?

And guess what... OSK forecast for FY 2006 is now only at 43.1 million! LOL!! (see table below)



Now take a look at their earnings table posted in their Aug 2005 report. LOL! They had a forecast net profit of 68.7 million for fy 2006. (see table below)

Waitttt..... guess what.... i found OSK earnings table posted in their July 2005 report. And fy 2006 forecast was at a whopping 73.4 million!! (see table below)



Truly amazing isn't it?

Look at OSK earnings forecast for TSH fy 2006.

From 73.4 million -> 68.7 million -> 43.1 million!!!

Hoi! This bugger playing masak-masak ka?

Oh and guess what?

• Downgrade to NEUTRAL . Given the required gestation period, we are downgrading TSH to Neutral with 12-month target price ofRM1.49, based on sum of part valuation methodologies on estimated FY06 figures. Nevertheless, we would reckon investors to retain TSH under their radar given the strong catalysts moving forward.

Downgrade wor!

• Just in Aug 2005, TSH was @ 1.74 with a buy and a target price of 2.19.
• Now in Jan 2006, TSH is @ 1.47 with a buy and a target price of 1.78.
• Now in Feb 2006, TSH is @1.40, downgrade to neutral with a price target of 1.49!!!!!

And let's not forget that the 12-month target is based yet again on sum of part valuation!!!

Anyway how has TSH been doing?

Ok, firstly last year's earnings were boosted by that one-off gain from the listing of Ekowood, of 15.336 million. Secondly, there is this tax credit adjustment in TSH account for this quarter. So to get a rough understanding, let's take a look at the Profit Before Tax (PBT) numbers for TSH recent years.

PBT Since 2001: 19.458 million, 30.174 million, 49.470 million, 67.709 million, 49.788 million.

(note last year's PBT was actually 83.045 but i minus out the one-time gain of 15.336, which meant the adjusted PBT for TSH for last year was 67.709 million)

As you can see clearly, TSH current earnings simply isn't happening. And let's not forget the fact that last year, TSH warrants were fully converted to ordinary shares, which meant a drastic dilution in earnings per share. Ouch!

ps. TSH closed yesterday, 28th Feb 2006 at a price of 1.31!

TSH Resources

Osk Research had a research article on TSH Resources.

Now I am one who always like to refer back to what was written previously.

TSH reported 2005 Q2 earnings on 25th Aug 2005.

Quarterly rpt on consolidated results for the financial period ended 30/6/2005

On the next day, OSK had a research article on TSH.

TSH's annualised 1HFY05 revenue is within our expectation as all of its divisions recorded an improved sale figures. However, its net earning was 36.8% below market and our estimates. The disappointing earning was mainly due to its 65% owned Ekowood which recorded a thinner margin, as the increase in raw material costs and weakened EURO cannot be transferred to the customer immediately (90% of Ekowood's sale is exported and denominated in EURO). Besides, TSH's oil palm also posted a lower profit due to seasonal factor as FFBs production was generally lower during the 1H. This is further compounded with the lower CPO price and increase fertiliser costs.

Ahh... ze below estimate thingy yet again.

Osk notes that TSH performance was 36.8% below market and our estimates!

OSK was estimating a net profit of 61 million for TSH's fy 2005.

TSH only did 19.290 million for the first half of its fy 2005 and based on an annualised basis, TSH should be earning around 38 million or so for its fy 2005.

38 million is very far from the 61 million hor.

So what does OSK do?

We have decided to revise downward TSH's earning forecast by 8.7% and 6.8% for FY05 and FY06 respectively as we think Ekowood need time to gradually pass on the costs increase to customers. Weakened in CPO prices lately compounded with increase in fertiliser costs will also further impact TSH's bottom line. However, we like TSH for its promising Bio-Integration projects and maintain our Buy call with a 12-month target price of RM2.19 based on Sum of Parts method, implied a PER of 11.2x against FY06 FD EPS.

Hmmm.. they revised TSH's earnings from 61 million to 55.7 million... but... butt... buttt.... their fy 2006 earnings is estimated at 68.7 million.

So for a stock that failed to meet their estimations, OSK still managed to maintain a BUY call on it.

Price of TSH then was 1.74. OSK target price was 2.19.

TSH reported its next earnings on 25th Nov 2005.

Quarterly rpt on consolidated results for the financial period ended 30/9/2005

Net profit was 8.963 million.
Total ytd net profit fy 2005 was 28.253 million.

Hmmm... looks like it's way below OSK's estimates... and ... err... aiseh i cannot locate in OSK's website their comments on TSH earnings.... hmmmm..... mmm..... maybe me browser is koyak lah.. cannot pakai lor.

Anyhow in today's research notes... it was noted that TSH has a share sale agreement with Wilmar Edible Oils:

TSH Resources (TSH) has on 9 January 2006 entered into a Share Sale Agreement with Wilmar Edible Oils SB (Wilmar) to dispose 2.5m shares in TSH-Wilmar SB and 1 ordinary share in Bio Fuel Asia SB, representing 50% equity interest in each company. The move is to form a strategic alliance with Wilmar to undertake a palm oil refinery and kernel crushing together with an operation of cogeneration plant and electricity & steam for bio-fuel.

Now what is interesting to me is the following...

BUY. We reiterate our BUY recommendation with a 12-month target at RM1.78 based on sum of parts methodology. Coupled with a decent gross dividend yield of 3.6% for FY06, the stock may potentially deliver a 12-month total return of 25%.

Now... what is interesting is that in the earnings table, there is no longer an OSK estimates but instead it only states consensus estimates. (LOL!!!.. i wonder why! typo mistake? :P)

Anywayyyy.... ze consensus estimates:

fy 2005 earnings is at 45 million..
fy 2006 earnings is at 58.9 million.

Sooooo....... price of TSH is now at 1.47. And OSK is calling a buy based on sum-of-parts (meh leh ka?) on TSH with a target price of 1.78.

How?

I am sure if a OSK subscriber that follows the buy recommendation won't be too happy.

Just in Aug 2005, TSH was @ 1.74 with a buy and a target price of 2.19.

Now in Jan 2006, TSH is @ 1.47 with a buy and a target price of 1.78.

Die standing isn't it?



ps.

The dilution of TSH earnings caused by the conversion of warrants is a pretty interesting case study.