Investment Highlights

• We maintain HOLD on TH Plantations (THP) with a fair value of RM0.33/share. Our fair value for THP is based on a P/BV assumption of 0.5x.

• We consider THP’s 1HFY20 results to be within our expectations as the group’s FFB production is expected to improve in the coming quarters.

• THP reported a smaller net loss of RM3.4mil in 1HFY20 compared with RM27.2mil in 1HFY19. This was driven mainly by a fair value gain of RM12.3mil on biological assets and higher palm product prices.

• Included in THP’s 1HFY20 reported net loss of RM3.4mil was an unrealised forex loss of RM16.9mil. We believe that this relates to foreign currency-denominated borrowings in the group’s Indonesian unit.

• Operationally, THP’s gross profit surged by 71.0% YoY to RM108.2mil in 1HFY20 supported by robust palm product prices. This mitigated the impact of a drop in CPO production.

• THP’s FFB production slid by 7.7% YoY in 1HFY20. On a quarterly basis, the group’s FFB output improved by 32.4% in 2QFY20.

• Average CPO price realised improved to RM2,388/tonne in 1HFY20 from RM1,915/tonne in 1HFY19. Average CPO price dived by 13.3% QoQ to RM2,236/tonne in 2QFY20.

• THP’s net gearing inched up to 216.5% as at end-June from 215.6% as at end-March 2020. THP’s gross borrowings stood at RM1.26bil as at end-June vs. RM1.24bil as at end-March.

• Gross cash rose to RM49.7mil as at end-June from RM37.1mil as at end-March. The QoQ increase in gross cash in 2QFY20 was due to higher revenue from the palm oil operations. THP’s retained earnings remained negative at RM207.5mil as at end June vs. RM215.7mil as at endMarch.

• THP’s balance sheet included assets available for sale. Net asset value of the assets was RM871.5mil as at end-June 2020. We believe that these assets are mainly in respect of oil palm estates in Sarawak.

Source: AmInvest Research - 27 Aug 2020