- We are maintaining TH Plantations Bhd (THP) as a SELL with a lower fair value of RM1.15/share. Our fair value implies an FY16F PE of 25x.

- THP’s 1HFY15 core results were below our expectations and consensus estimates. Similar to 1QFY15, there was an RM12.3mil fair value gain on timber assets, which kept THP in the black in 2QFY15.

- Effective tax rate was 29.4% in 2QFY15 versus a positive rebate in 1QFY15. For the full year, we believe that THP’s tax expense would be a positive figure due to recognition of deferred tax assets.

- THP’s revenue fell by 25.1% YoY to RM192.5mil in 1HFY15 due to weaker CPO price and production. Comparing 2QFY15 against 1QFY15, THP’s gross profit inched up 2% on the back of a 37.4% improvement in FFB production. Revenue surged by 33.9% QoQ to RM110.2mil in 2QFY15.

- Average CPO price realised declined by 15.7% from RM2,515/tonne in 1HFY14 to RM2,121/tonne in 1HFY15. Comparing 2QFY15 against 1QFY15, average CPO price inched down by 3.2% to RM2,092/tonne.

- THP’s FFB production slid by 8.7% YoY in 1HFY15. After a soft 1QFY15, the group’s FFB output recovered by 1.5% YoY in 2QFY15.

- FFB yield shrank from 9.3 tonnes/ha in 1HFY14 to 7.5 tonnes/ha in 1HFY15 due to lagged impact of the dry weather in Peninsular Malaysia in 1QFY15.

- Previously, management guided that FFB production would climb by 15% to 20% in FY15F underpinned by an increase of 9,300ha in mature areas.

- Interestingly, THP’s production cost (excluding depreciation) fell from RM1,435/tonne in 1HFY14 to RM1,374/tonne in 1HFY15. We believe that this was due to a decline in FFB purchases and cost-cutting measures. Production cost was RM1,275/tonne in 2QFY15 against RM1,506/tonne in 1QFY15.

- THP’s net gearing stood at 91.3% as at end-June 2015. The group’s gross cash declined from RM364.3mil as at end- FY14 to RM152.5mil as at end-June 2015 while gross borrowings rose from RM1.0bil to RM1.25bil.

Source: AmeSecurities Research - 1 Sep 2015