THP’s  9MFY13  results  were  in  line  with  our  but  below  consensus estimate.  The  company’s  rising  interest  expenses,  spiralling amortisation  charges  and  issuance  of  new  shares  for  its  recent acquisitions  will  compress  EPS  growth  going  forward,  while  its  P/E valuations remain steep at 47.9x FY13F and 26.5x FY14F. Maintain SELL with MYR1.15  FV, based on  an unchanged 16.0x FY14F P/E, in line with its mid-sized plantation peers.

• In  line.    THP’s  9MFY13  core  net  profit  was  in  line  with  our  but  below consensus  expectations,  coming  in  at  73%  of  our  FY13  forecast  and 65% of consensus’. We deem this in line given the slightly stronger CPO prices being recorded thus far in 4Q13.
• Core net profit down 51% y-o-y.  This was on the back of a  14% jump in  9M13 revenue. The  rise in  topline was due to a  62% y-o-y  surge  in FFB  production  (due  to  THP’s  recent  acquisitions,  which  boosted  its mature acreage  by 39%), but offset by a 29% y-o-y slide in CPO prices.
• The drop in net profit was due to a MYR17.7m 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)  9MFY13’s  output  made  up  71.3%  of  our  FY13 estimate  of  791,000  tonnes, which  management  expects  to  be  able  to meet;  ii)  production  costs  dropped  25%  y-o-y  to  MYR1,092  per  tonne due  to  a  change  in  fertiliser  application  to  straight  (vs  compound) fertilisers  and  improving  economies  of  scale,  thanks  to  a  larger  estate size; iii) new oil palm planting target of  5,000  ha for FY13  revised down to 1,500-2,000ha (as  948ha  was planted in  9M13),  with target for FY14 maintained  at  5,000-6,000  ha;  and  iv)  new  rubber  planting  target  of 4,000  ha  for FY13  cut  to 1,164  ha, the amount planted for 9M13;  target for FY14 kept at 3,000-4,000ha.
• Maintain  SELL.  No  changes  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  its  P/E valuations remain steep at 47.9x FY13F and 26.5x FY14F. Maintain SELL,  with a FV of MYR1.15, based on an unchanged 16.0x FY14F P/E, in line with the group’s mid-sized plantation peers.

Financial Exhibits

SWOT Analysis

Company Profile
TH Plantations is involved in oil palm plantations in Peninsular Malaysia, Sabah and Sarawak

Recommendation Chart

Source: RHB