Sarawak biggest contributor to TH Plantations’ FFB output

by **Cals** Wed 14 May 2014, 17:34

Business & Markets 2014

Written by BIMB Securities Research

Wednesday, 14 May 2014 10:19

TH Plantations Bhd
(May 12, RM2.07)
Maintain buy with target price of RM2.38: We recently visited THP Saribas Sdn Bhd — a joint venture between TH Plantations (80%) and Gunung Lesong Corp Sdn Bhd (20%) — in Pusa, Sarawak together with a group of analysts and fund managers. We returned with a positive view on the company, given that Sarawak as a growth catalyst may improve THP Saribas’ earnings moving forward.
Following TH Plantations’ acquisitions in 2012 and early 2013, Sarawak turned out to be the biggest contributor to fresh fruit bunch (FFB) output for financial year 2013 ended Dec 31 (FY13), accounting for 43% of total FFB production, followed by Peninsular Malaysia (33%) and Sabah (24%).
We are maintaining our earnings forecast at this juncture with a “buy” recommendation and target price of RM2.38.
THP Saribas owns four estates in Sarawak, namely Kenyalang, Raja Udang, Enggang and Merbok, plus one mill.
The average age of the estates is about five years. The palm oil mill is newly constructed and has a processing capacity of 324,000 tonnes per year.
To recap, TH Plantations reported higher revenue of RM470 million in FY13 compared with RM375.8 million in FY12, due to higher production and sales of crude palm oil (CPO) and palm kernel (PK) despite lower than average palm product prices (CPO: FY13 RM2,200 per tonne; FY12 RM2,661 per tonne; and PK: FY13 RM1,294 per tonne; FY12 RM1,602 per tonne).
The bottom line was further strengthened by lower production costs due to improvements in plantation practices and better economies of scale (FFB yield per mature hectare — FY13: 23.86 tonnes per hectare against budgeted 20.50 tonnes per hectare and industry average of 19.02 tonnes per hectare; FY12: 21.51 tonnes per hectare).
We are optimistic about TH Plantations’ future earnings as we are convinced by its long-term prospects given its key growth notes of: (i) value enhancement of enlarged plantation platform; (ii) landbank expansion; and (iii) humanising business operations that are on track and have started to bear fruit.
Hence, we maintain our FY14 and FY15 estimates. Our target price of RM2.38 is premised on our FY14 earnings before interest, depreciation and amortisation (Ebitda) per share estimates of 23.8 sen and a price-to-Ebitda ratio of 10 times. — BIMB Securities Research, May 12

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This article first appeared in The Edge Financial Daily, on May 14, 2014.[/color][/size]