TH Plantation (THP) managed to sustain its 1HFY23 performance with a PATAMI of RM16.8mn, attributed to higher profits from short-term investments and sundry income, amounting to RM25mn (against RM8mn: 1HFY22), supplemented by a fair value gain in biological assets of RM7.2mn (1HFY22: FV loss of RM9.7mn), as well as an unrealized gain of RM19.3mn compared to RM1.8mn in 1HFY22 – thus, mitigating the impact of lower operating profits from plantation activities. Despite this, there was no significant earnings respite; nevertheless, the company remained profitable after delivering a PBT of RM32.4mn (core PBT: RM5.8mn). Overall, the 1HFY23 core PBT of RM5.8mn fell short of our expectations, constituting only 12% of our full-year estimate. Nonetheless, its PATAMI exceeded both our and consensus expectations. All in all, we maintain a positive outlook on its long-term prospects, as it is set to leverage on better palm oil products price, subject to CPO price rebound (expected to trade RM400/MT above or below RM3,800/MT for the rest of the year), in addition to an expected production growth for this year. We have a non-Rated recommendation on the stock.

• Above expectations. THP’s 1HFY23 PATAMI of RM16.8mn was above our and consensus’ expectations.

• QoQ. 2QFY23’s revenue increased to RM172.5mn (+18% QoQ) during the period, thanks to higher production and sales volume of CPO and PK. Nonetheless, PATAMI slipped by 54% QoQ to RM5.3mn, hampered by lower operating profit on account of 1) higher cost of sales of RM155mn (+30% QoQ), 2) higher administrative and other expenses, amounting RM10.3mn (+26% QoQ), and 3) lower ASP realised for CPO/PK/FFB that declined by 4.1%/3.5%/2.9% respectively to RM3,669/MT, RM1,918/MT and RM727/MT; Table 2. Higher effective rate of 61% against 29% in 1Q23 also pushed PATAMI lower.

• YoY/ YTD. After adjusting for fair value changes in biological assets and unrealised gain or loss in foreign exchange, THP’s recorded a >100%/91% YoY/YTD contraction in core earnings to LBT of RM2.2mn in 2Q23 whilst posting a PBT of RM5.8mn for 1HFY23. This was in line with revenue that decreased by 31%/29% YoY/YTD, no thanks to lower ASP realised of CPO, PK and FFB. (Table 2).

• Outlook. We reaffirm our view that THP may encounter with potential risks that could impact its earnings this year, among others, if there is 1) a huge pullback in palm product price, 2) a hiccup in production, and 3) an increase in operational costs.

• Forecast. No change in earnings forecast.

• Our call. We have a non-Rated recommendation on the stock. Note that THP is now in Bursa’s FTSE4Good Index and FTSE4Good Shariah Index, effective 19 December 2022.

Source: BIMB Securities Research - 30 Aug 2023