We expect TH Plantations to benefit from the anticipated increase in CPO prices as a result of the El Nino impact, due to its strong earningssensitivity to CPO price movements. However, valuations remain prohibitive at current levels, while liquidity is minimal. Due to internal resource constraints, we are ceasing coverage on TH Plantations. Our last TP was MYR1.05, based on 17x 2016 earnings.

Beneficiary of CPO price uptick, although valuations are expensive. While we expect TH Plantations to also benefit from the anticipated increase in CPO prices as a result of the El Nino impact, valuations for 2016 continue to be prohibitive at current levels of 21x. In the longer term, we believe these valuations should improve, as its palm oil trees reach a more favourable age, which would result in better FFB yields.Currently, we estimate TH Plantations’ FY15 FFB yields to be around 17tonnes/ha, which is still a distance from Malaysia’s 19 tonnes/ha average.

Relatively illiquid with strong shareholders. TH Plantations is also a relatively illiquid stock, with average daily turnover of only MYR0,06m, although we highlight its strong shareholders – Lembaga Tabung Haji (LTH), which owns a 72% stake. This majority ownership bodes well for TH Plantations, given that LTH has, in the past, injected its privatelyowned plantation land into TH Plantations at reasonable valuations, contributing to its future growth. We note that management has been rather quiet on the investor relations front over the last few quarters. This could be due to the still low CPO prices and the resultant soft quarterly results which we have seen over the last few quarters.

Ceasing coverage. Due to internal resource constraints, we are ceasing coverage on TH Plantations. Our last recommendation was a SELL, with a TP of MYR1.05. Our TP was based on 17x 2016 target P/E, which is within its historical P/E band of 8-30x. We highlight that every MYR100/tonne change in CPO prices could affect the company’searnings by 8-10%.