Thursday 26 April 2012

TH Plantations - Squeeze in operating margin in 1QFY12 BUY


- TH Plantations Bhd (THP) is the first plantation company under our stock universe to release its 1QFY12 financial results. At first glance, THP’s 1QFY12 results were below expectations. 

- However, we expect THP to realise a higher average CPO price in the remaining months of the year, which should improve the group’s profitability in the coming financial quarters. Also, first quarter of the financial year is usually the weakest quarter for THP.

- THP’s net profit declined 40.2% YoY to RM13mil in 1QFY12 due to higher costs of production. 

- THP’s costs of production rose on the back of higher amount of fertiliser applied and an increase in labour costs. 

- As a result, THP’s production costs (excluding depreciation) climbed from RM1,252/tonne in 1QFY11  to RM1,624/tonne in 1QFY12. 

- According to Bursa Announcement, THP achieved 25% of the annual fertiliser budgeted for FY12F in 1QFY12 compared to 21% in 1QFY11. Due to heavy rains, fertiliser could not be fully applied in 1QFY11. We believe that fertiliser costs had also risen 15% to 20% YoY in 1QFY12.

- Going forward, we reckon that operating margins would improve in 2HFY12 as most of the fertiliser would have already been applied in 1HFY12. Also according to Bloomberg, average CPO price was RM3,313/tonne yearto-date. 

- THP’s revenue rose 26.6% YoY to RM95mil in 1QFY12 as an increase in the volume of CPO production helped compensate for lower average CPO price realised. Recall that CPO prices were surging to almost RM3,900/tonne in 1QFY11.   

- THP’s FFB production improved 7.6% YoY to 104,391 tonnes in 1QFY12. However, CPO production expanded 22.9% YoY to 22,606 tonnes in 1QFY12 due to higher FFB purchases from external parties.

- The double-digit YoY jump in CPO production in 1QFY12 helped offset an 11.4% decline in average CPO price realised. THP realised an average CPO price of RM3,076/tonne in 1QFY12 compared to RM3,471/tonne in 1QFY11. 

Source: AmeSecurities 

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