Investment Highlights

• We are upgrading TH Plantations (THP) to HOLD from SELL with a higher fair value of RM0.33/share (vs. RM0.19/share previously).

• We have raised our P/BV assumption for THP’s fair value to 0.5x from 0.3x as prospects for the palm oil sector are not as gloomy as before. Although palm inventory in Malaysia is envisaged to exceed 2mil tonnes in 2H2020, industry demand is recovering.

• We consider THP’s annualised 1QFY20 net profit to be within expectations as THP’s CPO production is expected to recover in the following quarters.

• THP’s reported net losses widened to RM11.5mil in 1QFY20 from RM8.1mil in 1QFY19 due to a fair value loss of RM10.8mil on biological assets. By contrast, THP recorded a fair value gain of RM6.7mil on biological assets in 1QFY19. THP also registered an unrealised forex loss of RM18.4mil in 1QFY20. We attribute this to the depreciation of the Rupiah faced by the Indonesia unit. We believe that THP has immature areas of more than 1,000ha in Indonesia.

• Operationally, THP’s revenue was flat YoY at RM115.6mil in 1QFY20 as higher CPO price was offset by a sharp fall in CPO production. Average CPO price realised rose by 34.1% to RM2,580/tonne in 1QFY20 from RM1,924/tonne in 1QFY19. Average palm kernel price improved by 34.4% to RM1,668/tonne in 1QFY20 from RM1,062/tonne in 1QFY19.

• THP’s FFB production dived by 21.0% YoY in 1QFY20. Comparing 1QFY20 against 4QFY19, group FFB output plunged by 29.0%.

• THP’s net gearing stood at 215.6% as at end-March 2020 vs. 214.5% as at end-December 2019. THP’s gross borrowings stood at RM1.24bil as at end-March 2020 compared with RM1.28bil as at end-December 2019.

• Gross cash amounted to RM37.1mil as at end-March 2020 vs. RM69.0mil as at end-December 2019. The decline in gross cash was due to repayment of borrowings of RM71.0mil. THP’s retained earnings remained negative at -RM215.7mil as at end-March 2020 compared with negative RM204.1mil as at end-December 2019.

• Included in THP’s balance sheet were assets available for sale. Net asset value of the assets was RM862.1mil as at end-March 2020. We believe that these assets are mainly in respect of oil palm estates in Sarawak.

Source: AmInvest Research - 26 Jun 2020