TH Plantations : Profit turnaround in 2QFY16 HOLD

STOCK FOCUS OF THE DAY

TH Plantations : Profit turnaround in 2QFY16       HOLD

We are upgrading TH Plantations (THP) from SELL to HOLD with a higher fair value of RM1.16/share. Our fair value implies a FY17F PE of 22x. We believe that THP deserves a higher PE of 22x compared with 20x previously due to lower earnings risk. Going forward, THP's net profit is expected to improve on the back of improved palm oil production and prices. THP’s 1HFY16 results were within our expectations but below consensus estimates. Included in THP's 1HFY16 results was a fair value loss of RM8.4mil on forestry assets.

THP’s production cost per tonne (ex-depreciation) rose from RM1,374 in 1HFY15 to RM1,611 in 1HFY16. On a quarterly basis, THP's production cost inched up from RM1,608/tonne in 1QFY16 to RM1,613/tonne in 2QFY16 as the group applied more fertiliser in 2QFY16. THP's CPO production surged by 45% QoQ in 2QFY16. The YoY increase in THP's production costs in 1HFY16 can be attributed to a 22.9% rise in estate maintenance costs.

THP's mature areas expanded by 3,881ha YoY in 1QFY16. THP's FFB production shrank by a small 2.9% YoY in 1HFY16. Compared to other planters, THP was not severely affected by El Nino due to its smaller exposure to Sabah. Looking ahead, however, THP's oil palm estates in Peninsular Malaysia may be hit in early-FY17F as West Malaysia experienced hot weather in 1QFY16. THP's net gearing rose from 95.3% as at end-March to 99.3% as at end-June 2016. THP recorded smaller negative operating cash flows of RM39.5mil in 1HFY16 compared with RM286.5mil in 1HFY15 on the back of a decline in outflows for working capital. 

Others :

Dialog Group : No impact from VTTI’s oil spill       BUY

Bintulu Ports : No surprises on 1HFY16 earnings                 HOLD

Bumi Armada : Claire impairment & lost Nigerian FPSO revenues               HOLD

CB Industrial :  Progress billings to improve further           HOLD

MBM Resources : Longer time to recovery           HOLD

QUICK TAKES

Titijaya land : ICPS for up to RM101.5mil to pay debt/fund projects           HOLD

Plantation Sector : Newsflow for week of 22 to 26 August             NEUTRAL

ECONOMIC HIGHLIGHTS

Japan : Expect deflationary environment to stay for a while

UK : 2Q2016 GDP did not feel the post-BREXIT impact

US : Is Yellen trying to be bullish?

NEWS HIGHLIGHTS

Pos Malaysia : Q1 net profit jumps 40% to RM32mil

Press Metal : On consolidation mode

AirAsia : Monetisation plan