• Overview. After adjusting for fair value changes on biological assets and unrealised forex gain/(loss), TH Plantation (THP) recorded a 31.3% YoY jump in core PBT to RM40.6mn in 2Q22. This was driven by higher revenue achieved on the back of higher average selling prices (ASP) realised of FFB, CPO and PK despite lower sales volume of CPO and PK, higher cost of sales amounting to RM183.6mn (+53%) and finance cost of RM19.3mn (+13%). On a quarterly basis, the higher ASP realised of CPO and FFB and, higher FFB production and sales volume of CPO and PK contributed to the improved performance -Table 2. The fair value changes in biological assets and unrealised forex gain/loss were the key variances in core earnings.

• Key highlights. A 14%YoY drop in FFB production to 154.7k MT vs. 180.0k MT in the same period last year was mainly due to lower production from Sarawak estates as a result of consolidation exercise and labour shortage especially harvester.

• Against estimates: Below. The result was below our estimates.

• Dividend. The Board declared an interim single-tier dividend of 1.5sen (2Q21: Nil), equivalent to a DY of 2.7% based on the current market price, payable on 11 October 2022.

• Outlook. Although we believe earnings would be sustainable in this financial year, we are cautious on the performance for next year owing to 1) prolong labour shortage issue especially harvester where this may impact its productivity, and 2) lower-than-expected CPO prices which could drag their earning – given THP earnings are highly correlated to ASP of palm products and production. Nonetheless, we hold the view that CPO price may sustain above RM3,000/MT to average at RM3,500/MT next year.

• Our call. We have a non-Rated recommendation on the stock.

Source: BIMB Securities Research - 24 Aug 2022