THP’s  1HFY13  net  profit  was  in  line  with  our  forecasts,  but  below consensus.  We  maintain  our  SELL  recommendation,  as  its  rising interest  expenses,  steepening  amortisation  charges  and  new  shares issuance  (in  relation  to  its  recent  acquisitions)  will  compress  EPS growth  going  forward,  while  P/E  valuations  remain  steep.  Our  FV  is reduced to MYR1.15 (from MYR1.35), after adjusting for a bonus issue.   

-  In  line.  THP’s  1HFY13  core  net  profit  was  in  line  with  our  –  but  below consensus  –  expectations,  coming  in  at  29%  of  our  FY13  forecast  and 18%  of  consensus  estimates.  We  deem  this  to  be  in  line,  as  the company  traditionally  records  60-70%  of  its  profits  in  2H,  due  to seasonalities.

- Core net profit fell 69% y-o-y. This was on the back of a 5% decline in 1H13 revenue. The topline drop was due to a 33% decline in crude palm oil  (CPO)  prices,  offset  by  a  57%  increase  in  fresh  fruit  bunches  (FFB) production  (due  to  THP’s  recent  acquisitions,  which  boosted  its  mature area  by  76.9%).  The  relatively  larger  drop  in  net  profit  was  due  to  a MYR11.8m amortisation charge for the FV of its newly-acquired estates’ net assets and higher interest expense, as THP issued MYR430m worth 
of sukuk in 1HFY13.  

- Briefing  highlights:  i)  1HFY13’s  output  reflects  42%  of  our  FY13 estimate  of  791,000  tonnes,  which  Management  expects  to  be  able  to meet; ii) production costs reduced by 13% y-o-y to MYR1,125 per tonne, due to change in fertiliser application to straight (vs compound) fertilisers and improvement in economies of scale  (thanks to a larger estate size); iii)  new  oil  palm  planting  target  of  5,000ha  for  FY13  intact,  ~971ha planted in 1H13; iv) new rubber planting target of 4,000ha for FY13 also intact,  1,818ha  planted  in  1H13;  and  v)  THP’s  bonus  issue  was completed  in  June,  increasing  issued  capital  by  149.7m  new  shares  to 877.3m.   

- Maintain  SELL.  No  change  to  our  forecasts.  THP’s  rising  interest expenses, steepening amortisation charges and issuance of new shares (in  relation  to  its  recent  acquisitions)  will  compress  EPS  growth  going forward,  while    P/E  valuations  are  at  a  steep  44.8x  FY13F  and  24.9x FY14F.  Maintain  SELL  with  a  reduced  FV  of  MYR1.15  (adjusted  for bonus issue) (from MYR1.35), based on unchanged 16.0x FY14F P/E, in line with its mid-sized plantation peers.

Source: RHB