TH Plantations records good start to 2017, but cost structure remains

KUALA LUMPUR: TH Plantations Bhd (THP) started the year on a good note but analysts noted that its high cost structure remains a key concern, for now.

In a press statement, THP announced that its first quarter of the financial year 2017 (1QFY17) net profit was at RM15.25 million, on the back of RM166.05 million revenue.

The group’s reported profit before tax (PBT) was at RM20.31 million, while its earnings before interest, taxes, depreciation and amortisation (EBITDA) also came in strong at RM53.37 million against RM6.38 million last year.

Maybank Investment Bank Bhd’s research arm (Maybank IB Research) pointed out, with THP’s 1QFY17 results, THP has returned to the black.

“Stripping fair valuation gains on timber and other exceptional items, 1QFY17 core profit after tax, and minority interest (PATMI) of RM15.4 million met 33 per cent of our/consensus full-year estimates, within expectations,” it added.

The group’s year-on-year (y-o-y) growth was contributed by higher crude palm oil (CPO) average selling prices (ASP) of RM2,997 per tonne (an increase of 34 per cent y-o-y and an increase of 14 per cent q-o-q), higher FFB output (up 17 per cent y-o-y, down nine per cent q-o-q), and RM6 million of government grant for its forestry division.

“We estimate its 1QFY17 all-in cost of production at lower RM2,390 per tonne (down nine per cent y-oy, down nine per cent q-o-q), in part due to low fertiliser application in the first quarter,” it opined.

For 2017, THP guided a 10 per cent growth in FFB output. However, Maybank IB Research retained its forecasts of 17 per cent.

“1QFY17 FFB output met just 19 per cent of our full-year forecast, but within historical trends. We make no change to our earnings forecasts as we anticipate lower earnings in the second half of 2017 (2H17) as THP’s earnings are highly sensitive to CPO price movement,” it added.

Nevertheless, Maybank IB Research pointed out that THP aims to pare down its net gearing to 0.5folds (currently at 0.63-folds).

“While THP has completed the disposal of THP Gemas in December 2016 for RM154 million cash, it will continue to explore the disposal of other non-core and non-strategic assets, targeting to raise a further RM350 million to RM450 million in cash to pare down debts.

“We understand THP has identified selected timber plantation in Sabah and oil palm estates in Sarawak for disposal,” it added.

All in, the research team maintained a ‘hold’ rating on the stock.