• TH Plantations (TH) has signed a heads of agreement with TDM Bhd to record the principle agreement and understanding in relation to the proposed disposal of THP’s 70% stake in THP-PT Plantation Sdn Bhd to TDM Bhd for RM7mil cash.
   
• Apart from this, THP-YT will resolve RM62mil of its inter-company advances to THP by a bank facility (to be undertaken by THP-YT) and shareholders advances by TDM and/or Yayasan Terengganu. The latter holds the balance 30% stake in THP-YT.

• The balance RM16.7mil of the inter-co balances will be assigned to TDM for a consideration of RM1.00.

• THP-YT owns three parcels of oil palm estates amounting to 2,594.5ha in Caluk and Merang, Terengganu.

• We are neutral on this development. We think that there is a possibility that THP may have to write off or impair RM16.7mil of the inter-co balances in its P&L.

• Also based on the net book value of THP-YT of RM76.9mil (disclosed in THP’s 2018 Annual Report) and the disposal proceeds of RM69mil, we believe that THP may be recording a loss on disposal of RM7.9mil.

• Based on the selling price of RM69mil and hectarage of 2,595ha, the selling price translates into a consideration of RM26,590/ha. We believe that the selling price is low as THP-YT may be unprofitable and prone to floods.

• On a positive note, THP would be able to use the disposal proceeds of RM69mil to reduce borrowings. The group’s gross borrowings stood at RM1.29bil as at end-September 2019. Net gearing was 169.6%.

• In early December 2019, THP proposed to sell 6,514ha of land in Sarawak for RM417.5mil in total (including settlement of inter-co loans). The net loss on disposal after writing off the inter-co advances is RM15.6mil.

• After the two proposed disposals, we estimate that THP still has planted areas of oil palm of 50,056ha left.

• We maintain a SELL on THP with a selling price of RM0.45/share.

Source: AmInvest Research - 2 Jan 2020