January 26, 2011

THPLANT - RHB Research: TH Plantations undervalued stock

Stock Name: THPLANT
Company Name: TH PLANTATIONS BHD
Research House: RHB

KUALA LUMUR: RHB Research said TH PLANTATION []s Bhd remains an undervalued stock which would appeal to both growth and defensive investors.

The research house, which reiterated its Outperform recommendation, said on Wednesday, Jan 26 it had adjusted its earnings for FY10-12 by +2.8%, -3.5% and -3.7%, respectively.

'Based on an unchanged target PE of 11x FY11, our fair value is trimmed to RM2.70 (from RM2.80). This implies an upside of 33%, which does not even include its attractive dividend yield of 4.5-7.5% per annum,' it said.

RHB Research said TH Plantations' FY10 fresh fruit bunches (FFB) yield was below expectations, but more than offset by higher-than-expected oil extraction rate.

Among the key takeaways from its meeting with the company, it said the management targeted 15% annual FFB production growth for next five years, despite higher replanting targets for 2011; some CPO sold forward for FY11 while management fees were expected to grow by 10% per annum, purely from volume growth alone.

'We understand that THP is currently in advanced stages of negotiation to acquire two pieces of landbank, one in Indonesia and one in Sarawak, and intends to complete at least one acquisition by end-1H2011, with another potentially, by end-2011 or if not, early 2012. These acquisitions will not be an injection of land by Tabung Haji, but independent acquisitions by THP.

'The landbank under consideration is a piece of brownfield land in Indonesia (East Kalimantan) and a piece of greenfield land in Sarawak. Assuming each is about 10,000ha (which is the minimum landbank size that THP would consider for any acquisition), there is a possibility that THP's total landbank size could grow by 50% by year-end, although total planted landbank may only grow by 25%,' it said.

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