Tuesday, 3 April 2012

TH Plantations - LTH to sell oil palm estates in Indonesia? BUY

- According to news reports, Lembaga Tabung Haji (LTH) has conditionally accepted a proposal by an Indonesia-based company to buy its 95% stake in PT TH Indo Plantations (THIP). LTH said that it first received a proposal to acquire its stake in THIP in February 2012. 

- The disposal price of the oil palm estates in Indonesia was not disclosed. We estimate that the disposal proceeds would be about RM2.1bil based on a conservative assumption of RM30,000/ha and the disposed stake of 95%.  

- We are puzzled at the rationale for the disposal of LTH’s oil palm estates in Indonesia. Although TH Plantations’ balance sheet is small currently, it has always been a subject of discussion that LTH’s Indonesian plantation assets would be injected into TH Plantations one day.    

- Currently, TH Plantations manages LTH’s oil palm estates in Indonesia. The management fee was about RM25.8mil in FY11, which accounted for 6% of group turnover. 

- It was not disclosed if the TH Plantations would continue to manage the oil palm estates in Indonesia under the new owner. However, we reckon that it would be in the best interest if the new owner if TH Plantations were to continue. This is due to the large size of the estates, which would make it difficult for the new owner to look for new estate managers and workers.

- Also, we believe that without the management fee, TH Plantations’ net profit would fall significantly.   
- Presently, LTH’s plantation landbank in Riau, Indonesia amount to about 83,878ha. Planted area is roughly 73,514ha. Out of the planted area of 73,514ha, approximately 63% of the oil palm trees are between 10 to 19 years old while another 28% is between four to nine years old. The balance 8% of the oil palm trees are three years and below.    

- We would be seeking more information from TH Plantation’s management on the details of the proposed disposal of LTH’s oil palm estates in Indonesia. Maintain a BUY on TH Plantations for now.  

Source: AmeSecurities

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