Investment Highlights

• We are keeping our SELL recommendation on TH Plantations (THP) with an unchanged fair value of RM0.45/share. Our fair value of RM0.45/share for THP implies a price-to-book ratio of 0.5x.

• We have increased THP’s FY19F core net loss to RM66.5mil from RM55.4mil previously. We have revised down THP’s average CPO price realised to RM2,100/tonne from RM2,300/tonne originally. We have also revised our FY19F EBITDA assumption for THP to 8.0% from 10%.

• After the huge kitchen-sinking exercise in 4QFY18, THP’s reported net losses narrowed to RM8.1mil in 1QFY19 from RM578.2mil.

• Recall that THP recorded impairments of RM594.9mil in 4QFY18. About RM354mil of the impairments were made in respect of THP’s 14,900ha of oil palm estates in Sarawak, which are expected to be sold off in a year’s time.

• Comparing 1QFY19 against 1QFY18 however, THP’s core net loss widened due to weaker palm product prices. THP’s core net loss (ex-fair value gain on biological assets of RM6.7mil) widened to RM14.6mil in 1QFY19 from RM0.3mil in 1QFY18. Gross profit margin slid to 37.8% in 1QFY19 from 41.7% in 1QFY18.

• Average CPO price realised shrank by 18.3% to RM1,924/tonne in 1QFY19 from RM2,355/tonne in 1QFY18. Average palm kernel price contracted by 42.0% to RM1,241/tonne in 1QFY19 from RM2,140/tonne in 1QFY18.

• FFB production improved by 12.1% YoY in 1QFY19. We have assumed that THP’s FFB production would increase by 10% in FY19F.

• THP’s net gearing rose to 163.7% as at end-March 2019 from 150.2% as at end-Dec 2018 as its shareholders’ funds slid by 6.7% to RM739.1mil.

• THP’s retained earnings was -RM31mil as at end-March 2019 (as at end-Dec 2018: +RM22.4mil) due to negative impact from retrospective changes made for a new accounting policy on leases.

• Gross borrowings were unchanged at RM1.2bil as at endMarch 2019. Gross cash were only RM28.9mil as at endMarch 2019. Net asset value of the assets available for sale (oil palm estates in Sarawak) stood at RM675.9mil as at end-March 2019.

Source: AmInvest Research - 28 May 2019