Thursday, 14 March 2013
TH Plantations - Inorganic Growth Leads The Way
TH Plantations’ planted area has grown by 78.5% over the past nine months following several local buyouts. This has led to its average tree age improving from 16 years to 13 years. We see FFB production and earnings rising by 45.2% and 81.5% respectively this year, although EPS is likely to expand 26.8% amid a sharply bigger share base. While much of this year’s growth will be inorganic, its younger tree age profile will bolster organic growth moving forward. Maintain NEUTRAL,with FV of RM2.12.
On a shopping spree. Since July 2012, TH Plantations (THP) has been sealing a slew of agreements to acquire estates in Sabah, Sarawak and Terengganu. These acquisitions have boosted the company’s oil palm planted area by 78.5% from 37,475 ha to 66,890 ha in less than a year, placing it alongside Sarawak Oil Palms (SOP) and Boustead in terms of planted hectarage. In this report, we take a look at the changes in THP’s fundamentals following its recent inorganic, acquisition-driven expansion.
Rejuvenation in progress. With the new purchases mostly consisting of young or immature estates, THP’s average tree age has improved to 13 years old from a relatively mature 16 years prior to the acquisitions. Now, 71.0% of the company’s trees are below the peak production age of 10 years, similar to that of TSH, Kencana Agri, BW Plantations and SOP.
Still saddled with old trees. The similarities aside, the difference between THP and the companies mentioned above is that it still has a sizeable portion of old trees. This poses an immediate replanting risk which may affect its production in the near term. THP has 11,904 ha (16.6% of total planted area) of oil palms in their 20s, with the oldest as mature as 28 years old. The company hopes to further improve its average tree age to 11 years old, which it can achieve by: i) replanting its old estates more aggressively, ii) planting on its existing unplanted area, or iii) acquiring more young estates.