TH Plantations - 2QFY12 net profit up QoQ on low tax rate BUY

- TH Plantations Bhd’s (THP) 1HFY12 results were below expectations due to an increase in production costs, resulting from a climb in labour and fertiliser costs. 

- THP’s cost of production was an estimated RM1,246/tonne (after factoring in PK credit) in 1HFY12. This was 16.8% higher than the operating cost of RM1,067/tonne recorded in 1HFY11.

- We have cut THP’s FY12F net profit by 26% to account for the erosion in operating margins. Our new fair value for THP is RM3.00/share (versus RM3.25/share previously), based on an FY13F PE of 12x.

- There are a few takeaways from THP’s 2QFY12 results. First, its net profit was 52.2% higher QoQ. This was contrary to expectations that the group’s 2QFY12 results would be flat or weaker compared to 1QFY12.  

- The QoQ jump in net profit was underpinned by a loweffective tax rate of 6.2% in 2QFY12 versus 37.3% in 1QFY12. THP attributed the decline in effective tax rate to an increase in capital allowances.

- At the pre-tax profit level, THP’s earnings were relatively flat QoQ. Gross profit margin was unchanged at 40.8%.  

- Second, THP’s CPO production grew 2.4% YoY in 1HFY12. In spite of a 5.4% YoY fall in FFB production in 1HFY12, THP managed to record an improvement in CPO output due to a higher amount of FFB purchases. FFB purchases surged 170.4% from 15,892 tonnes in 1HFY11 to 42,979 tonnes in 1HFY12. 

- Due to the increase in CPO production and sales, THP’s revenue inched up 3.5% YoY to RM194.4mil in 1HFY12.  In terms of selling prices, THP’s average CPO price realised shrank 7.3% from RM3,351/tonne in 1HFY11 to RM3,106/tonne in 1HFY12.

- Third, and interestingly, THP indicated that the cost to control pest and disease was marginally higher YoY  in 2QFY12 due to the Tirathaba infestation ((fruits infested by Tirathaba moth) in Sarawak and Bagworm outbreak in Pahang.

- Going forward, THP would benefit from the acquisition of 25,490ha of oil palm estates in the long term. This is due to the young age of the oil palm trees of one to 14 years old. The acquisition is expected to be completed in 4QFY12.

Source: AmeSecurities