Investment Highlights

• We maintain TH Plantations (THP) as a SELL with a lower fair value of RM0.40/share (vs. RM0.45/share previously). Our fair value of RM0.45/share for THP implies a price-tobook ratio of 0.6x (vs. 0.7x previously). THP’s book value was RM0.64/share as at end-FY19. We have reduced our P/BV assumption for THP to account for a higher risk of asset impairments.

• THP’s FY19 results were below our expectations and consensus estimates. The group reported a larger net loss of RM167.6mil in 4QFY19 compared with RM31.6mil in 3QFY19 due to additional impairments of RM132.4mil. In 3QFY19, THP had already recorded impairments of RM53.6mil on property, plant and equipment.

• In total, THP recorded impairments of RM186mil in FY19 (FY18: Impairments of RM594.9mil). Out of the RM186mil, about RM110mil was in respect of property, plant and equipment while another RM50.4mil was on plantation development expenditure. An additional RM15.6mil impairment was related to right-of-use assets.

• Operationally, average CPO price improved to RM2,133/tonne in 4QFY19 from RM1,916/tonne in 3QFY19. Average palm kernel price rose to RM1,286/tonne in 4QFY19 from RM1,105/tonne in 3QFY19.

• On a negative note, THP’s FFB production slid by 14.3% QoQ in 4QFY19.

• Comparing FY19 against FY18, THP’s average CPO price slid by 7.2% to RM1,968/tonne in FY19 from RM2,121/tonne in FY18. Average palm kernel price shrank by 31.4% to RM1,172/tonne in FY19 from RM1,709/tonne in FY18.

• THP’s FFB production inched up by 0.7% in FY19.

• THP’s gross borrowings stood at RM1.28bil as at end-FY19 vs. RM1.2bil as at end-FY18.

• THP’s retained earnings were a negative RM204.1mil as at end-FY19 vs. a positive RM22.4mil as at end-FY18. Gross cash reserves rose to RM69mil as at end-FY19 compared from RM50.6mil as at end-FY18.

• Net gearing surged to 214.5% as at end-FY19 from 150.2% as at end-FY18 as shareholders’ funds fell by 28.8% to RM564.4mil. The decline in shareholders’ funds came about as retained earnings became negative.

Source: AmInvest Research - 27 Feb 2020