-  In spite of TH Plantations Bhd (THP) improved quarterly results, we are keeping our SELL recommendation on the group due to expensive valuations. Our new fair value of RM1.80/share versus RM1.70/share previously is based on a FY14F PE of 25x.

-  THP is currently trading at a FY14F PE of 26.3x. In the past seven years, THP’s PE band ranged from 4.9x to 17.4x.

-  THP’s annualised 9MFY13 net profit was above our expectations and consensus estimates. The group’s net profit rebounded from RM7.1mil in 2QFY13 to RM15.4mil in 3QFY13 underpinned by strong FFB production growth of 27.9% and contribution from the new palm oil mill in Pusa, Sarawak.

-  On a YoY basis however, THP’s net profit fell by 50.7% in 9MFY13, dragged by higher depreciation and amortisation expense.

-  THP’s depreciation and amortisation expense jumped by 95.4% from RM28.1mil in 9MFY12 to RM54.9mil in 9MFY13. We expect THP’s depreciation and amortisation expense to normalise only in FY15F.

-  The group has a policy of amortising plantation estates when they are mature.

-  New mature areas surged this year due to the acquisition of more than 40,000ha estates, which were completed in December 2012 and February 2013.

-  Cash production costs were RM1,092/tonne in 9MFY13 versus RM1,454/tonne in 9MFY12.

-  FFB output is expected to rise 51% YoY in FY13F underpinned by contribution from the newly acquired estates. For FY14F, THP’s FFB production is envisaged to improve by 8%.

-  Average selling price fell by 29.2% from RM3,025/tonne in 9MFY12 to RM2,143/tonne in 9MFY13.

-  THP’s average CPO price was about RM180/tonne lower than MPOB’s (Malaysian Palm Oil Board) average spot price of RM2,323/tonne in 9MFY13.

-  Net gearing stood at 71% as at end-Sept 2013 versus 32.6% as at end-Dec 2012. The climb in net gearing was due to borrowings used to finance the acquisition of oil palm estates. 

Source: AmeSecurities