TH PLANTATIONS 2QFY08

Margin squeeze
SELL
RM3.44
Target Price: RM2.65
AmResearch

YE to Dec FY07 FY08F FY09F FY109F
EPS (sen) 31.6 57.4 44.2 40.5
PE (x) 10.9 6.0 7.8 8.5

TH Plantations Bhd’s (TH Plant) 2QFY08 results were within expectations.

Net profit surged 148% YoY to RM51.4mil in 1HFY08 underpinned by a 109% YoY jump in turnover. Turnover growth was anchored by higher CPO (crude palm oil) price and production.

According to MPOB (Malaysian Palm Oil Board), the average CPO price in 1HFY08 was RM3,517/tonne against RM2,174/tonne in 1HFY07. TH Plant also recorded a 45% increase in CPO production in 1HFY08. CPO output amounted to 33,918 tonnes in 1HFY08 versus 23,348 tonnes in 1HFY07.

Due to the higher CPO price, gross margin improved from 46.8% in 1HFY07 to 53.9% in 1HFY08.

On a QoQ basis, net profit weakened 20.2% YoY to RM22.9mil in 2QFY08 due to erosions in gross profit margin from higher fertiliser costs. Gross profit margin declined from 59.6% in 1QFY08 to 48.4% in 2QFY08.

Turnover inched up 3.3% QoQ to RM67.8mil in 2QFY08 on the back of higher CPO production. CPO output rose 2.5% QoQ to 17,170 tonnes in 2QFY08 while CPO price remained flat at the RM3,500/tonne level.

TH Plant has declared interim gross dividend per share (DPS) of 10 sen less 26% income tax. For the full year, we forecast gross DPS of 29 sen, which translates into a yield of 8.4%.

We maintain SELL on TH Plant as CPO prices are expected to remain soft underpinned by excess global supply of vegetable oils. Crude oil prices are also falling while biodiesel policies in the United States and Europe are not as positive as before. TH Plant’s strongest selling point is its high dividend payout. Investors looking for attractive dividend yields may consider this stock despite our SELL recommendation.


TABLE 1 : EARNINGS SUMMARY (RMm)