Market Capitalisation:RM682.4m
Recommendation:BUY
Analyst: Edmund Tham
Key Stock Statistics 2008E
EPS(sen) 46.5
P/E(x) 7.5
Dividend/Share(sen) 31.5
NTA/Share(RM) 1.26
Book Value/Share(RM) 1.26
Issued Capital(mil shares) 196.1
52-weeks share price (RM)2.60 – 3.82
Major Shareholder:Lembaga Tabung Haji (LTH) 60.1%
PERFORMANCE
During 2Q08, TH Plantations Bhd (TH Plant) recorded an increase of 85.4% in revenue to RM67.8 million from RM36.6 million in 1Q07. The better result was mainly due to the strong palm oil prices and higher production levels. TH Plant’s profit before tax for 2Q08 was RM32.8 million as compared to RM14.7 million in 2Q07 mainly due to the increase in revenue by 85.4% and gross profit margin by 2.2%.
For 1H08 ended 30 June 2008, TH Plant recorded an increase of 108.6% in revenue to RM133.4 million from RM63.9 million in 1H07. The increase was mainly contributed by the strong palm oil prices and higher production as well. Profit before tax for 1H08 ended 30 June 2008 was RM71.3 million as compared to RM27.4 million in 1H07, mainly due to the increase in revenue by 108.6% and gross profit margin by 6.5%.
OUTLOOK
Looking at the recent weakness in CPO futures prices, we expect CPO prices to hover around RM3,000-3,100 per metric tonne on average, for the remainder of 2H/2008 and 2009.
Our expectations would be revised pending clearer trends emerging for both crude oil and soyoil futures during 2H/2008. In general, crude oil and soyoil price trends do affect CPO prices. Soyoil is a close substitute of palm oil while CPO is used for biodiesel needs as well.
While CPO futures prices are weak currently, TH Plant’s topline numbers would be sustained by both organic production growth and plantation land acquisitions over the course of the year.
“Government looking at measures to support CPO price levels”
Recently, the Malaysian Plantation Industries and Commodities Minister Datuk Peter Chin had announced that the government is looking at measures to help support the CPO price levels. The government would try to lower the current stock of crude palm oil in Malaysia by exporting crude palm oil to countries like India, Pakistan, China and the Middle East.
Other possible measures include increasing usage of crude palm oil for bio-fuel production in Malaysia, encouraging local power producers to use crude palm oil as raw material to produce energy and having more industries and factories use crude palm oil instead of diesel as their feedstock fuel.
VALUATION
Based on our forecast of TH Plant’s FY08 EPS, P/E of 11 times and giving a 15% discount to account for the weakness in CPO futures, we derive a year-end target price of RM4.34, still a 24.8% upside from its current market price. Maintain BUY.
APPENDICES
TH Plant 52-week chart
Commodity Futures – Recent Downtrend
CPO Futures 52-week chart
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