-  We maintain SELL on TH Plantations (THP) with an unchanged fair value of RM1.80/share. Our fair value implies an FY15F PE of 20x.

-  THP’s annualised 1QFY14 results were sharply below consensus estimates and our earnings forecast. We are keeping our earnings forecast for now. In 2013, THP’s results in 2H accounted for 84% of full year’s net profit.

-  Although THP’s top line surged by 38.9% YoY in 1QFY14, net profit only inched up from RM3.2mil in 1QFY13 to RM5.6mil in 1QFY14.

-  THP was affected by a 43% increase in cost of sales. THP’s tax expense also swung from positive in 1QFY13 to negative in 1QFY14.

-  THP’s production cost per tonne climbed 32.2% from RM1,129/tonne in 1QFY13 to RM1,492/tonne in 1QFY14 due to an increase in manuring cost. Fertiliser application was on schedule in 1QFY14 compared with a delay in 1QFY13 due to the wet weather.

-  THP’s upkeep and cultivation costs were also higher in 1QFY14 as 7,484ha of new areas came into maturity.

-  THP realised an average CPO price of RM2,507/tonne in 1QFY14, which was 23.2% stronger than the average price of RM2,035/tonne achieved in 1QFY13.

-  Recall that THP’s CPO price in 1QFY13 was significantly below market prices due to the low quality of its fruits, which were affected by the wet weather.

-  THP’s average CPO price realised of RM2,507/tonne in 1QFY14 was 6.2% below MPOB’s (Malaysian Palm Oil Board) average spot price of RM2,672/tonne for the whole country.

-  THP’s FFB production grew 7.9% YoY in 1QFY14. After declining by 20.3% MoM in February 2014 due to the dry weather, the group’s FFB output recovered by 17.8% in March.

-  We have forecasted a FFB output growth of 5% for FY14F. There is a possibility that THP’s FFB production would stagnate or grow at a slower rate in 2HFY14 due to the high base effect last year.

-  THP’s depreciation and amortisation expense rose 15.8% YoY to RM20.3mil in 1QFY15.

-  We believe that this is in respect of the expansion in mature areas. We reckon that THP’s depreciation and amortisation expense would only normalise in FY15F.

Source: AmeSecurities