- We are maintaining SELL on TH Plantations Bhd (THP) with an unchanged fair value of RM1.40/share. Our fair value implies an FY15F PE of 33x. We have reduced THP’s FY15F EPS significantly to account for lower operating margin.

- Excluding the net gain on disposal of RM13.9mil, THP would have slipped into the red in 4QFY14. As such, we consider THP’s FY14 core results to be below consensus estimates and our expectations.

- Apart from the gain on disposal of land, THP’s FY14 results were boosted by a positive tax expense. THP recognised positive tax expense of RM5.5mil in FY13 and RM1.4mil in FY14 as taxes were deferred to future years.

- We understand that the deferred tax would continue in FY15F although the quantum is unknown.

- Comparing FY14 against FY13, THP’s FFB production rose by 0.8%. FFB yield slid from 23.9 tonnes/ha in FY13 to 20.5 tonnes/ha in FY14 due to lagged impact of the dry weather, which took place in 1QFY14.

- Also in 4QFY14, floods affected fruit harvesting and evacuation in east Peninsular Malaysia. THP’s FFB production contracted by 17.2% QoQ to 194,434 tonnes in 4QFY14 due to adverse impact of the floods.

- Going forward, THP expects FFB production to grow by 15% to 20% on the back of new mature areas of 9,300ha. FFB yields of these areas are estimated between 12 and 15 tonnes/ha in FY15F.

- THP’s average CPO price realised rose 3.5% from RM2,200/tonne in FY13 to RM2,277/tonne in FY14. Average CPO price realised edged down from RM2,106/tonne in 3QFY14 to RM2,041/tonne in 4QFY14.

- THP’s cost of production (excluding depreciation) rose from RM1,148/tonne in FY13 to RM1,298/tonne in FY14. This was primarily driven by higher costs for the new mature areas.

- We understand that estate cost per tonne would increase by 5% to 7% in FY15F due to costs for the new mature areas of 9,300ha.

- THP’s gross DPS was 2 sen in FY14. This implied a yield of 1.3% and net payout of 36.6%, which is below the official policy of 50% of annual net profit. The board of directors of THP had agreed to reduce the dividend payout of the company as the group needs to conserve cash for new plantings and replanting.

Source: AmeSecurities