February 22, 2011

THPLANT - TH Plantations a value buy

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

TH Plantations Bhd
(Feb 22, RM1.97)
Maintain buy at RM1.90 with unchanged target price RM3.25
: THP's earnings of RM89.5 million in FY10 were ahead of our expectations by 2.5%. Net profit'' in 4QFY10 surged 98% quarter-on-quarter and'' 89% year-on-year to RM42.6 million'' despite lower crude palm oil (CPO)output, which was more than made up for by higher CPO prices. ''

THP's full-year fresh fruit bunch (FFB) production of 463,949 tonnes was 4% lower than our projection due to heavy rainfall,'' especially in Peninsular Malaysia. FFB and CPO output in FY10 dropped 11% and 8% respectively. ''

Net profit margin increased significantly'' by 6.78 percentage points'' from 17.7% in FY09 to 24.5% in FY10. The higher margin'' was due to the higher CPO price realised and a drop in cost of sales by 1.2% y-o-y to RM200.6 million. ''

We remain positive on the future growth of THP on the back of: (i) the targeted replanting policy of 1,500ha annually; (ii)'' increase in mature hectarage; (iii) additional mill in Saribas that will increase CPO production; and (iv) future expansion to Indonesia. ''

TH Plantations is a value buy in our opinion, with the share price having retraced 14% from its'' recent high of RM2.22 (Jan 12). THP has strong growth potential given the expansion plan in Indonesia. Hence, we maintain our 'buy' recommendation at an unchanged target price of RM3.25. This is derived from a FY11 PER of 14.6 times, one standard deviation above its'' 5-year historical PER of 11.2 times. However, given the more sedate market sentiment towards plantation stocks, we are'' likely to adjust the basis of our valuation in due course. There is therefore a downward bias to our target price. ' MIDF Research, Feb 22


This article appeared in The Edge Financial Daily, February 23, 2011.

No comments:

Post a Comment