-  Maintain SELL on TH Plantations (THP) with an unchanged fair value of RM1.80/share. Our fair value is based on a FY14F PE of 23x. In the past seven years, THP’s PE band ranged between 4.9x and 17.4x.

-  THP’s FY13 results were 8% above consensus estimates and our earnings forecast due to a lower-than-expected effective tax rate. If the tax rate were to normalise, THP’s results would have been within consensus and our estimate.

-  THP’s tax expense was a positive RM5.5mil in FY13 versus an effective tax rate of 9.9% in FY12. In 4QFY13, the group recognised a positive tax expense of RM9.9mil.

-  THP said that the swing in tax expense was due to higher deferred tax asset recognised from unabsorbed capital allowances and unutilised tax losses.

-  The group has declared a final gross DPS of 3.62 sen for FY13, which translates into a yield of 2%.

-  Average CPO price realised was RM2,200/tonne in FY13 versus RM2,661/tonne in FY12. THP’s CPO realised price of RM2,200/tonne was RM167/tonne lower than MPOB’s (Malaysian Palm Oil Board) spot price of RM2,367/tonne for FY13.

-  We attribute this to the poor quality of CPO sold in early-FY13. The CPO carried forward from end-FY12 was affected by a high level of free fatty acids.

-  THP’s depreciation and amortisation expense surged by 87.7% from RM40.5mil in FY12 to RM75.9mil in FY13. As mentioned in the previous reports, we expect THP’s depreciation and amortisation expense to normalise only in FY15F. Production cost excluding depreciation and amortisation was RM1,148/tonne in FY13 versus RM1,319/tonne in FY12.

-  The increase in depreciation and amortisation expense was due to a rise in new mature areas resulting from acquisitions of oil palm estates. These acquisitions were completed in December 2012 and February 2013.

-  The acquisitions resulted in a 49% surge in THP’s FFB production in FY13. We expect FFB output to grow at a slower rate of 5% in FY14F.

-  THP’s net gearing stood at 72.5% as at end-FY13 compared with 32.6% as at end-FY12.

-  Gross borrowings rose from RM490.6mil as at end-FY12 to RM1bil as at end-FY13. The increase in the borrowings was due to financing for the acquisition of oil palm estates.

Source: AmeSecurities