Investment Highlights

• We maintain SELL on TH Plantations (THP) with a higher fair value of RM0.45/share vs. RM0.33/share previously. Our fair value for THP is based on a P/BV assumption of 0.7x compared with 0.5x originally. We think that there are smaller risks of asset impairments as CPO prices have risen.
• We have raised THP’s FY21F net profit by 9.1% to account for a higher CPO price of RM2,500/tonne vs. RM2,400/tonne originally.
• THP’s 9MFY20 core net profit (ex-disposal gain of RM8.7mil) was within our forecast.
• THP swung into the black with a reported net profit of RM12.4mil in 9MFY20 from a net loss of RM58.9mil in 9MFY19. The earnings turnaround in 9MFY20 was due to higher palm product prices and a disposal gain of RM8.7mil. These compensated for unrealised forex loss of RM23.4mil and a write-off of receivables of RM16.7mil.
• We believe that the forex loss of RM23.4mil in 9MFY20 was in respect of foreign currency-denominated borrowings at the group’s Indonesia unit.
• THP’s average CPO price realised improved by 27.8% to RM2,447/tonne in 9MFY20 from RM1,915/tonne in 9MFY19.
• On a negative note, THP’s FFB production fell by 6.3% YoY in 9MFY20. We attribute this to the lagged impact of the drought and haze, which took place in Malaysia in 3QFY19.
• Comparing 3QFY20 against 2QFY20, THP’s reported net profit improved to RM15.8mil from RM8.2mil. Average CPO price realised rose to RM2,540/tonne in 3QFY20 from RM2,236/tonne in 2QFY20. FFB production grew by 19.0% QoQ in 3QFY20.
• THP’s net gearing slid to 195.1% as at end-September 2020 from 216.5% as at end-June. Operating cash flows improved to RM72.5mil in 9MFY20 from RM1.2mil in 9MFY19 on the back of higher CPO prices. Gross borrowings were RM1.2bil while gross cash was RM80.3mil as at end-September.
• Net asset value of the assets available for sale in the balance sheet was RM812.9mil as at end-September 2020. We believe that these are mainly oil palm estates in Sarawak, which have been earmarked for disposal.

Source: AmInvest Research - 27 Nov 2020