- We are downgrading TH Plantations Bhd (THP) from BUY to HOLD with a lower fair value of RM2.35/share. Ex-date of THP’s 1-for-5 bonus issue is 3 June 2013. The bonus shares will be quoted on 6 June 2013.

- THP’s 1QFY13 core net profit of RM3.2mil fell short of our expectations and consensus estimates.

- The group was hit by higher amortisation costs, which resulted from the acquisition of new subsidiaries last year. THP’s depreciation and amortisation expense climbed 94.2% from RM9mil in 1QFY12 to RM17.5mil in 1QFY13.

- Excluding the depreciation and amortisation expense, THP’s production costs were relatively unchanged.

- On a per tonne basis, the group’s cash cost actually fell from RM1,600 in 1QFY12 to RM1,130 in 1QFY13 due to higher volume of palm oil production.

- FFB production expanded 52.6% from 104,391 tonnes in 1QFY12 to 159,384 tonnes in 1QFY13 underpinned by the acquisition of oil palm estates from Lembaga Tabung Haji. Sales of CPO increased 49.4% YoY to 32,940 tonnes in 1QFY13.

- The higher volume of sales helped cushioned the fall in CPO prices, which resulted in turnover being weaker by 5.9% YoY only in 1QFY13.

- THP realised an average CPO price of RM2,035/tonne in 1QFY13, which was 33.8% lower than the average price of RM3,076/tonne recorded in 1QFY12.

- THP’s average CPO price realised in 1QFY13 was almost RM280/tonne lower than MPOB’s (Malaysian Palm Oil Board) CPO price due to the poor quality of palm fruits carried over from last year.

- We understand that the situation has normalised and going forward, THP’s average CPO price realised should be closer to spot prices. According to MPOB, average spot CPO price was RM2,315/tonne in 1QFY13.

- THP’s net gearing rose from 32.6% as at end-Dec 2012 to 70.9% as at end-Mar 2013 as the group borrowed to acquire 6,513ha of land in Sarawak from Weida Bhd and a group of individuals. The acquisition was completed in February 2013.

- In spite of the rise in net gearing, THP’s interest coverage was comfortable at 5.7x in 1QFY13.  

Source: AmeSecurities