THP’s asset disposals could take place next year

KUCHING: TH Plantations Bhd’s (THP) plans to dispose of its non- core assets will likely only take place next year, analysts predict, due to the current weak market conditions.

In a report, the research arm of AmInvestment Bank Bhd (AmInvestment) believed THP’s plans to dispose of its non- core assets may not come into fruition this year said due to weak market conditions.

“It is likely that potential buyers would only return to the market in financial year 2019 forecast ( FY19F),” it said. To note, THP plans to sell its non- core assets to reduce its RM1.2 billion gross borrowings.

The research team saw that one of the assets it seeks to disposed of is Ladang Jati Keningau. Ladang Jati Keningau, which is a teak plantation in Sabah and had a net book value of RM30.1 million as at end-FY17.

“Operationally, we have assumed that THP’s fresh fruit bunches ( FFB) production would grow by 10 per cent in FY18F compared with 21.3 per cent in FY17.

“However, FFB processed is estimated to rise by only 3.1 per cent in FY18F due to a drop in FFB purchases.

“THP recorded an increase of 9.2 per cent in FFB output in the first half of FY18 (1HFY18).

“We understand that 2H would account for 55 to 60 per cent of THP’s full-year FFB production while 1H is envisaged to make up the balance 40 to 45 per cent,” AmInvestment said.

It believed that THP’s oil palm estates in Sarawak are expected to drive group FFB production in 2HFY18.

“FFB output in Sarawak was below expectations in 1HFY18, dragged by floods at the start of the year. THP’s FFB production in Sabah and Peninsular Malaysia climbed by 30 and 25 per cent year- on-year (y- o-y) respectively in 1HFY18,” it added.

Meanwhile, the research team noted that THP estimated that the cost of production (ex-mill and depreciation) would increase by five to 10 per cent if the minimum wage was increased from RM1,000 per month (in Peninsular Malaysia) to RM1,500 per month.

“Disregarding this, we think that THP’s cost of production (ex-mill and depreciation) would rise from RM1,570 per tonne in FY17 to RM1,600 per tonne in FY18F due to higher costs of fertiliser and wages,” AmInvestment opined.

All in, it maintained its ‘hold’ call on the stock.