ECM Libra Investment Research has maintained its buy recommendation on TSH Resources Bhd at RM2.32 but downgraded its target price from RM5.20 to RM4.20 as it lowered the company's earnings forecast going forward.

The research house said TSH Resources' six months annualised earnings were 9% below its estimates and 1% below consensus, adding that in 2QF08 the wood segment under Ekowood fell short due to poor overseas sales.

It said revenue from the segment fell 30% year-on-year (y-o-y).

"The plantations segment continued to be strong, showing 25% quarter-on-quarter growth and 94.5% y-o-y growth given high crude palm oil (CPO) prices during the period."

"However, margins were noticeably softer during the quarter as we see higher operating costs eating into profits, the key culprit being fertiliser costs," it said.

ECM Libra said concurrent with its dampened outlook for CPO prices, it was imputing a RM2,500 per tonne average price for FY09, adjusting down from RM3,000 previously. "We believe that given a slowdown in demand from China going forwardand hence lower export numbers and coupled with stronger production, CPO prices will not be able to sustain at the RM3,000 level. Besides that, a global commodities selldown, starting with oil, also influences CPO prices given the high correlation of the two commodities."

"Earnings for the segment have been adjusted downwards by some 10%. We have also lowered FY08 forecasts slightly to account for higher operating expenses. Besides the plantations segment, we have also taken a more conservative stance on Ekowood given its dependence on foreign markets," it said.

The research house said with the earnings revision, it was downgrading its valuation on TSH Resources to reflect current market sentiment. "From a price earnings (PE) of 13 times before, we adjust down to 11 times, still showing the same discount to big cap peers of which we now use a 14 times PE. Our target price hence has been adjusted down to RM4.20 from RM5.20 before."

"Given the extremely cheap valuations, as well as commendable growth still achievable next year despite the softening in CPO prices, we continue to see value in TSH Resources. Hence, maintaining our buy call at this juncture," it said.