Mercury Securities Sdn Bhd

RESULTS – 2Q/FY10 6 Aug 2010

For period Apr-Jun 2010
Price: RM1.59
TH Plantations Market Capitalisation: RM775.6m

Board: Main Board

Stock Code/Name: 5112 / THPLANT FBM Index: EMAS Shariah / Small Cap

Recommendation: HOLD Sector: Plantation

Analyst: Edmund Tham

Key Stock Statistics 2010E 2Q/ 30 Jun 2Q10 2Q09 yoy % 1Q10 qoq%
EPS (sen) 11.6 Rev (RMm) 76.0 84.9 (10.5) 77.2 (1.6)
P/E (x) 13.4 EBIT (RMm) 14.4 13.2 9.4 28.9 (49.9)
Dividend/Share (sen) 8.5 NPAT (RMm) 7.6 10.0 (24.3) 17.8 (57.2)
NTA/Share (RM) 0.98 EPS (sen) 1.6 2.1 (24.3) 3.6 (57.2)
Book Value/Share (RM) 0.98
Issued Capital (mil shares) 487.8 6M/ 30 Jun 6M10 6M09 yoy %
52- weeks share price (RM) 1.40 – 1.64 Rev (RMm) 153.2 144.9 5.8
Major Shareholder: % EBIT (RMm) 43.3 23.2 86.5
Lembaga Tabung Haji (LTH) 67.9 NPAT (RMm) 25.4 18.4 37.9
EPS (sen) 5.2 3.8 37.9

Per Share Data 2007* 2008* 2009 2010E

PERFORMANCE
Book Value (RM) 0.51 0.82 0.93 0.98
Earnings (sen) 15.6 17.2 11.0 11.6
TH Plantation’s (TH Plant) 2Q/FY10 figures were
Dividend (sen) 10.5 8.8 8.5 8.5 lower than we expected. Nevertheless, TH Plant’s
Payout Ratio (%) 49.8 37.8 57.8 54.7 annualized 1H/FY10 revenue and net profit after
PER (x) 10.2 9.2 14.4 13.7 tax (NPAT) were generally in-line with our earlier
P/Book Value (x) 3.1 1.9 1.7 1.6 full-year FY10 estimates.
Dividend Yield (%) 6.6 5.5 5.3 5.3
ROE (%) 30.4 21.0 11.9 11.8 “2Q figures lower than expected”
Net Gearing (cash) (x) (0.01) (0.10) 0.17 0.08
*figures adjusted for 1:1 bonus in Jan 2009 For 2Q/FY10 ended 30th June 2010, the group
recorded a 10.5% decrease in revenue to RM76.0
million from RM84.9 million for the same quarter
P&L Analysis (RM mil) 2007 2008 2009 2010E last year. This was mainly due to the lower revenue
Year end: Dec 31 from sales of CPO and the lower management fees
Revenue 175.6 243.4 304.4 314.7 recorded during the current quarter. The lower sales
Operating Profit 82.5 115.6 78.9 94.3 revenue from CPO was due to the lower sales volume
Depreciation (8.3) (8.5) (8.7) (8.9) of CPO despite of the higher sales prices. Group PBT
Interest Expenses 0.0 (0.0) (8.0) (9.2) (profit before tax) for 2Q/FY10 was higher by 14.1%
Pre-tax Profit 82.5 115.5 70.9 85.2 to RM12.5 million as compared to RM11.0 million
Effective Tax Rate (%) 25.9 27.8 19.5 23.8
for the same quarter last year, mainly due to the
Net Profit 61.3 84.1 53.8 56.8
lower “other operating expenses”.
Operating Margin (%) 47.0 47.5 25.9 30.0
Pre-tax Margin (%) 47.0 47.5 23.3 27.1
34.9 34.5 17.7 18.1
For 1H/FY10 ended 30th June 2010, the group
Net Margin (%)
* RM0.50 par value
recorded an increase of 5.8% in revenue to RM153.2
million from RM144.9 million for the same period
*CPO=crude palm oil; PK=palm kernel; FFB=fresh fruit last year, which was mainly contributed by the higher
bunch commodity prices for CPO and PK despite of the
lower sales volumes.
All information, views and advice are given in good faith but without legal responsibility. Mercury Securities Sdn. Bhd. or companies or
individuals connected with it may have used research material before publication and may have positions in or may be materially interested in
any stocks in the markets mentioned.
This report has been prepared by Mercury Securities Sdn Bhd for purposes of CMDF-Bursa Research Scheme ("CBRS") administered by
Bursa Malaysia Berhad and has been compensated to undertake the scheme. Mercury Securities Sdn Bhd has produced this report
independent of any influence from CBRS or the subject company. For more information about CBRS and other research reports, please visit
Bursa Malaysia’s website at: http://www.bursamalaysia.com/website/bm/listed_companies/cmdf_bursa_research_scheme/
 Mercury Securities Sdn Bhd
Group PBT for 1H/FY10 was RM39.7 million as
compared to RM24.3 million for the same period last
year. This was also mainly due to the higher
commodity prices and the lower “other operating
expenses”.
Compared to the preceding quarter, the group’s
2Q/FY10 revenue was lower by 1.6% mainly due to
the lower sales for PK, FFB and also lower
management fees during the quarter. Meanwhile,
group PBT was lower as compared to the preceding
quarter due to the higher production cost and lower
revenue. The higher production cost was mainly due
to the “manuring programme” (organic fertilizer
programme) carried out during the quarter.
OUTLOOK/CORP. UPDATES
Overall, TH Plant’s sales volumes have been weaker
than we expected during its 1H/FY10. Nevertheless,
the generally better y-o-y CPO prices have mitigated
the weaker demand. In the upcoming months, we
expect factors such as the La Nina weather
phenomenon (unusually heavy rains can affect
harvesting and lower CPO stockpiles) and the
Muslim world’s Aidilfitri (Hari Raya) festival
(higher demand for oil palm-based food and cooking
oil) to prop up CPO prices. Furthermore, soybean
and crude oil prices have also generally been
stronger in recent months. CPO prices do move to a
certain extent in correlation with both soybean and
crude oil prices.
“La Nina and Aidilfitri to prop up CPO prices”
Based on the recent CPO commodity price trends,
TH Plant should continue to record steady revenue
and profit growth in its FY10 and FY11. The group’s
revenue growth would mostly depend on any upside
in CPO prices and organic FFB production
expansion, barring any future plantation land bank
acquisitions. We expect TH Plant’s ASP (average
selling price) for CPO to be in the RM2450-2650/mt
range for the next 2-3 quarters. Nevertheless, TH
Plant's FFB production from its plantation operations
would continually be affected by seasonal crop
factors, weather and climate conditions.
Results Coverage
This report has been prepared by Mercury Securities Sdn Bhd for purposes of CMDF-Bursa Research Scheme ("CBRS") administered by
Bursa Malaysia Berhad and has been compensated to undertake the scheme. Mercury Securities Sdn Bhd has produced this report
independent of any influence from CBRS or the subject company. For more information about CBRS and other research reports, please visit
Bursa Malaysia’s website at: http://www.bursamalaysia.com/website/bm/listed_companies/cmdf_bursa_research_scheme/
(Page 2/3) 6 Aug 2010
“ROE & Dividend FY10 KPI targets on track”
In March 2010, TH Plant announced that its new
FY10 KPI targets were to achieve 12.0% ROE, 21.6
mt/ha FFB yield (metric tonne per mature hectare)
and to distribute approximately 50% of its annual net
profits after tax and minority interest (NPATMI) as
dividend.
As at 30th June 2010, the group had achieved a 11.3%
annualized ROE while the distribution of dividends
based on the annual net profit after tax will be done
after finalization of financial year 2010 audited
financial statements. We foresee that the group
would have no problem to meet the dividend payout
target of 50%. However, the group’s management
will endeavour to achieve its full-year targeted yield
per hectare despite of the cyclical nature of plantation
industry and unforeseen circumstances surrounding
the remaining period of the year.
“On the lookout for more land bank”
TH Plant, which has grown its land bank size from
32,000 hectares to 39,159 hectares, expects to push
up the figure to 50,000 hectares by 2012. Group
Executive Director and CEO Datuk Zainal Azwar
Zainal Aminuddin told the media that THP planned
to achieve its aim via third party acquisitions or
related party transactions. He said the company had
a stand-by credit line facility of RM120 million
through Bai Muharabah Medium Term Notes
issuance for its plans.
TH Plant, which aspires to be a formidable medium-
sized player in future, achieved its medium-term key
performance indicator of owning a 32,000ha land
bank a year ahead of schedule. Accordingly, the
current market price for existing plantations starts at
around RM30,000 per hectare, while unplanted land
can fetch RM7,000 per hectare. The group also plans
to spend RM97 million to build a mill and buy
machinery in Sarawak. The group already owns 5
mills in Peninsular Malaysia.
TH Plant has displayed commitment and noble
intentions towards fulfilling its Corporate Social
Responsibilities (CSR). These include measures and
activities for the employees (training, OSH),
community (zakat, schools, flood victims etc) and the
environment (zero-burning).
 Mercury Securities Sdn Bhd (Page 3/3) 6 Aug 2010

VALUATION
Due to our concerns about TH Plant’s lower CPO TH Plant: 6-month chart
sales volume and lower plantation management fees
received, we have further tweaked our estimates
lower for its full-year FY10 revenue.

With the global economy on the recovery path in

2010, we expect the picture for plantation companies
to look rosier in 2010, as compared to the year
before. Nevertheless, there remain various risks from
commodity price volatilities, demand fluctuations,
supply constraints, sector inventory levels,
contractual timing differences, foreign exchange
translation, weather/crop yield variations and
operational costs.

“Steady dividend payout”

Source: NextView
During the second quarter ended 30th June 2010 the
group declared and paid a final gross dividend of 8.5
sen per share (less tax 25%) for FY09 ended 31st
December 2009, amounting to RM31.1 million. For
FY10, we estimated that TH Plant would declare the CPO prices: 12-month chart
same gross dividend per share (DPS) of 8.5 sen,
reflecting a dividend payout of 54.7%. This is given
RM/mt
that the group targets to pay-out approximately 50% 3000
of its annual NPATMI each year.
2500

TH Plant has an adjusted beta (correlation factor) to 2000

the KLCI of 0.84. In 2010, the stock is up by 8.9%
1500
YTD (slightly outperforming the KLCI, which is up
by 6.9% YTD). Based on our forecast of TH Plant’s 1000
FY10 EPS and a reasonable expected P/E of 14
times, we derive a FY10-end target price of 500
RM1.63, approximate its current market price. At 14 0
times P/E, TH Plant is near to its other plantation
Nov-09

Jan-10

Jun-10

Jul-10
Aug-09

Sep-09

Oct-09

Dec-09

Feb-10
Mar-10

Apr-10

May-10

Period
peers’ average P/E valuation (13.6 to 16.8 times) and
thus it is not really any cheaper than the others. As
such, we are maintaining our Hold Call on TH Plant. Source: Bloomberg

“Upside dependent on CPO prices, sales volume

and land-bank acquisitions”

Any further earnings growth and hence valuation

upside for TH Plant would depend mainly on the
strength of palm commodity prices, its sales volumes
and future plantation land bank acquisitions.
Meanwhile, with its minimal gearing position, TH
Plant would be easily able to consider future land
bank acquisitions from either its main shareholder i.e.
Lembaga Tabung Haji or other parties as well.

All information, views and advice are given in good faith but without legal responsibility. Mercury Securities Sdn. Bhd. or companies or
individuals connected with it may have used research material before publication and may have positions in or may be materially interested in
any stocks in the markets mentioned.
This report has been prepared by Mercury Securities Sdn Bhd for purposes of CMDF-Bursa Research Scheme ("CBRS") administered by
Bursa Malaysia Berhad and has been compensated to undertake the scheme. Mercury Securities Sdn Bhd has produced this report
independent of any influence from CBRS or the subject company. For more information about CBRS and other research reports, please visit
Bursa Malaysia’s website at: http://www.bursamalaysia.com/website/bm/listed_companies/cmdf_bursa_research_scheme/