STOCK IN FOCUS
TH Plantations : Large young areas to suppress FFB yields HOLD
Maintain HOLD on TH Plantations (THP) with a lower fair value of RM1.10/share, which implies an FY18F PE of 20x. We have reduced THP's FY18F net profit by 8.1% to account for a more conservative EBITDA margin of 33.5% vs. 35% previously (FY17E: 31.3%). We were too aggressive in our original assumption. THP is expected to continue reducing its borrowings in FY18F by disposing non-core assets. A few of these assets include oil palm estates, which are old and not strategically located, and forestry plantations in Sabah.
Ideally, THP would like to reduce its net gearing to 50% or below. For THP's net gearing to drop to 50%, we estimate that its net debt would have to fall by more than RM300mil in FY18F. As at end-September 2017, THP's gross borrowings amounted to RM1,267.1mil while net gearing was 84.2%. We have not accounted for any asset disposal in THP's FY18F net profit.
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