TH Plantations’ 1H15 earnings disappointed again, coming in at 26-29% of FY15 forecasts. We cut our earnings and lower our TP to MYR0.75 (from MYR1.00, 38% downside). Despite its decent expected annual FFB production growth of 8-13% pa for FY16-17, the company remainshighly susceptible to extreme weather conditions given the young age of its trees. In addition, CPO price sensitivity is high at 8-10% pa for every MYR100/tonne change.

Below estimates. TH Plantations’ 1H15 net profit was below our and consensus expectations, at 26-29% of FY15 forecasts. The main discrepancy was the lower-than-expected FFB production growth of -8.7% YoY in 1H15 (vs management’s target of +15-20% and our projected +5% for FY15), due to the delayed impact of Sarawak’s dry weather experienced in 1H14 and the wet monsoon in 1Q15. CPO price achieved of MYR2,121/tonne was also below our projected MYR2,350.

1H15 core net profit fell 51% YoY on the back of a 25% YoY drop in revenue. The fall in topline was due to the 8.7% YoY drop in FFB production and a 16% YoY decline in CPO prices. FFB yields declined by 1.8 tonnes/ha YoY (-20%) due to young areas coming into maturity, which bear lower yields. At present, approximately 33% of its matured area is in the first and second year of maturity. This also resulted in higher unit production costs in 1H15 of MYR1,374/tonne (from MYR1,300/tonne in FY14).

Overall, we cut our FY15-17 earnings forecasts by 44%, after cuttingour FFB growth projections to -1% for FY15 (from +5%) and +8-13% (from +13-17%) for FY16-17, reducing CPO price assumption for FY15 to MYR2,200 (from MYR2,350/tonne), and raising our production cost estimates by 5% pa due to lower FFB yield projections.

Maintain SELL. We trim our TP to MYR0.75 (from MYR1.00), based on a lower 15x (from 16x) 2016 target P/E, on the back of weak market sentiment and foreign fund outflows in the market. Despite the company’s decent expected annual FFB production growth of 8-13% pafor FY16-17, we highlight that it continues to be highly susceptible to extreme weather conditions given the young age of its trees. In addition, this FFB growth may not be enough to offset the impact of lower CPO pices given its significant sensitivity to CPO prices. We estimate every MYR100/tonne decrease in CPO prices could hurt its earnings by 8-10% annually. We maintain our SELL recommendation, as we believe valuations remain prohibitive at current levels.