TH Plantations - Did not benefit from rise in FFB output in 3Q Hold

- TH Plantations Bhd’s (THP) 9MFY12 results fell short of expectations, as the group sold most of its FFB to external parties in 3QFY12 instead of milling the FFB themselves.

- As such, even though FFB production grew 26.1% from 2QFY12 to 3QFY12, THP’s CPO output only inched up by 2.3%. Sale of FFB to external parties climbed 51% QoQ to 30,029 tonnes in 3QFY12. 

- We do not know the rationale for the increase in the sale of FFB and would have to contact management today to find out. We have revised downwards THP’s FY12F earnings forecast to account for the lower-than-expected CPO production.  

- Comparing 9MFY12 against 9MFY11, turnover eased 8.9% YoY to RM276.7mil due to lower CPO prices and production. 

- FFB production fell 4.3% from 363,968 tonnes in 9MFY11 to 348,485 tonnes in 9MFY12. This is a production pattern faced by other plantation companies as well. 

- The weak FFB output can be attributed to the lag effect of the hot and dry weather, which took place in early-2010.

- Average CPO price realised shrank 5.6% from RM3,203/tonne in 9MFY11 to RM3,025/tonne in 9MFY12.

- THP’s average price realised of RM3,025/tonne is close to MPOB’s (Malaysian Palm Oil Board) average spot price of RM3,083/tonne.  

- THP’s gross profit margin slid from 57% in 9MFY11 to 41.2% in 9MFY12. This was due to higher fertiliser costs and wages. In the results announcement, THP said that it had applied a higher dosage of fertiliser in 9MFY12. 

- As a result, production costs (excluding depreciation) rose from an estimated RM1,278/tonne in 9MFY11 to RM1,584/tonne in 9MFY12. 

- THP benefited from a positive tax expense in 3QFY12, which was attributed to over-provisioning of taxes  in previous years. In 2QFY12, THP’s effective tax rate was low at 6.2% compared with the statutory rate of 25%.  

- THP’s tax swung from a RM1.5mil expense in 2QFY12 to an income of RM10.1mil in 3QFY12.   

Source: AmeSecurities