Company Name: TH PLANTATIONS BHD
Research House: MAYBANK
TH Plantations Bhd
(Nov 3, RM1.67)
Maintain hold at RM1.68 with target price of RM1.75: We raise our FY10/FY11 earnings by 12.1% and 2.2% respectively after incorporating higher average selling price (ASP) ' 2010: RM2,300 to RM2,550, 2011: RM2,400 to RM2,600 ' and higher minority contribution.
While THP is attractively valued relative to its peers, we believe the discount is merited given the company's almost perennial pricing issues. We maintain 'hold' with a higher target price of RM1.75.
Net profit for 3Q was RM22 million (+183% quarter-on-quarter, +68% year-on-year), bringing 9MFY10 net profit to RM47 million (+50% y-o-y). The ASP in 3Q (RM2,529 per tonne) trended up in line with market movements, but is still below spot (RM2,639 per tonne).
Nevertheless, the discount to spot prices has narrowed, as the commissioning of a new mill in Sabah nearer THP's estates has shortened the time taken for fruits to be processed, resulting in better oil quality.
Fresh fruit bunch (FFB) production grew 25% q-o-q and 7% y-o-y. On a year-to-date (YTD) basis, however, FFB production is down 5% y-o-y due to a weak first half.
While production trends are likely to remain favourable in 4Q, we believe THP is unlikely to achieve its FFB target of 21.6 tonnes per hectare in FY10. Our yield assumption of 19.2 tonnes per ha in FY10 remains unchanged.
By our estimate, a 50% payout translates into a dividend yield of about 4% at current prices. THP pays annual dividend in its entirety after 4Q results are declared. We forecast THP's gearing will remain at a reasonable level of 26% post-payout in FY10.
We raise our target price to RM1.75 based on 11.4 times forward price-earnings ratio, representing the two-year mean. We think a significant upward re-rating is unlikely, at least until management has permanently addressed the price inferiority issue.
However THP's relatively high dividend yield should provide downside support for the share price in our view. ' Maybank IB Research, Nov 3
This article appeared in The Edge Financial Daily, November 4, 2010.