-  We maintain SELL on TH Plantations (THP) with an unchanged fair value of RM1.80/share. Our fair value implies an FY15F PE of 25x.

-  THP’s annualised results were below consensus estimates and our earnings forecast. We have reduced THP’s FY14F earnings forecast by 15.3% to account for a lower-than expected EBITDA margin.

-  THP’s net profit climbed from RM5.6mil in 1QFY14 to RM20.2mil in 2QFY14 on the back of a positive tax expense and improvement in gross profit margin. The positive tax expense was underpinned by a deferred tax asset and  write-back of tax provision.

-  THP recorded a cost of production (excluding depreciation) of RM1,435/tonne in 1HFY14 against RM1,138/tonne in 1HFY13. The increase in cost of production was due to new areas coming into maturity.

-  Although THP’s FFB production grew 6.5% YoY in 1HFY14, its CPO production expanded by 23.6% supported by higher FFB purchases.

-  FFB purchases climbed 165.3% from 33,563 tonnes in 1HFY13 to 89,028 tonnes in 1HFY14.

-  On a QoQ basis, the group’s FFB output strengthened by 8.6% to 186,802 tonnes in 2QFY14.

-  Average CPO price realised climbed 20.1% from RM2,094/tonne in 1HFY13 to RM2,515/tonne in 1HFY14.

-  Comparing 2QFY14 against 1QFY14, average CPO price realised inched up by 0.7% to RM2,524/tonne.

-  THP’s depreciation and amortisation expense continued to increase in FY14F on the back of an increase in mature areas. Depreciation and amortisation expense rose by 17.3% YoY to RM40.9mil in 1HFY14.

-  THP’s key performance indicator (KPI) is to expand its plantation landbank by another 30,000ha by FY15F. So far, the group has acquired 6,514ha of land, thus meeting 21.7% of its KPI.

-  We understand that THP would be slowing down its landbank acquisitions for now due to policy uncertainties in Indonesia.

Source: AmeSecurities