M A Securities Company Highlights

2 Noorhayati Maamor [email protected] 03-22821820 ext. 277 Company Highlights –TH Plantations Berhad M et A ess the next couple of years when it...

0 downloads 217 Views 509KB Size
M&A Securities

Company Highlights

PP14767/09/2012(030761)

TH Plantation Bhd (THP)

Market Access

“Leap, and the Net will Appear”

Monday, May 18, 2015

HOLD (TP: RM1.47) Current Price (RM)

RM1.55

New Target Price (RM)

RM1.47

Previous Target Price (RM)

RM1.45

We are of the view that most plantation companies under

Previous Recommend.

HOLD

our coverage may record unimpressive results in 1Q2015

Upside To Target Price

-5.1%

results season given the dilemma of 1) lower CPO average

Dividend Yield (FY16)

1.3%

selling price realise, 2) slower FFB and CPO production, 3) poor and/or squeeze in downstream margins, and 4) higher unrealised forex translation loss. As for TH Plantation Berhad (THP), we anticipate the company may record a lower profit in FY15 and its 1Q15 earnings results may have a higher probabilities of turning into the red as its FFB and CPO production had recorded a double-digits declined in volume during the quarter. Although the company does not have any exposure in forex translation but it may incur higher production cost in-line with its younger estates profile. We reiterate our HOLD call on the stock with a new TP of RM1.47. Slow FFB and CPO production. THP’s FFB and CPO production in 1Q15 had declined 29% q-o-q (20% y-o-y) and 22% q-o-q (22% y-o-y) respectively to 137,988 MT and

Stock Code Bloomberg

THP MK

Stock & Market Data Listing

MAIN MARKET

Sector

Plantation

Shariah Compliance

Yes

Issued Shares (mn)

883.9

Market Cap (RM mn)

1,370.0

YTD Chg. In Share Price

-8.82%

Beta (x) 52-week Hi/Lo (RM)

0.73 RM2.18

RM1.40

3M Average Volume (‘000shrs)

169.8

Estimated Free Float

20.3%

Major Shareholders

31,052 MT due to inter alia 1) drought phenomena which affected the region in 1Q14 and hence, delayed effect to

Lembaga Tabung Haji EPF

7.3%

production as a result; 2) floods in December that enveloped the eastern region including Kedah; 3) younger estates (1st year harvesting of 7,484 hectares at 17% of mature area); and 4) seasonally low cycles. Although management has guided that THP is targeting a 15% to 20% growth in FFB production for financial year 2015 driven by

Dimensional Fund Adv.

0.4%

72.4%

9,300 ha of new maturity and 7,500 ha of 2nd year maturity, we have projected its FFB will only grow by 5% (as per table 1) as production may be impacted by the delayed impact of adverse weather condition coupled with tree stress effect (in 2013 THP had recorded an impressive growth in FFB production by 49% y-o-y; 2014: 0.8% y-o-y) on top of its younger estates and younger age profile. Young estates profile of average 9 year. THP is banking on its younger estates as a catalyst for exponential growth in Noorhayati Maamor [email protected] 03-22821820 ext. 277

1

Company Highlights –TH Plantations Berhad the next couple of years when its estates turn into its fundamental growth maturity. THP has the highest immature to young mature trees area among its peers (stock under coverage) or 87% of its planted area with mature area (10-19yrs) amounting to 24% and the remaining mature to old mature area (20-25yrs) of 25%, are seen as a major catalyst for the production growth moving forward. According to the management, in order to strengthen its position as a medium size plantation company, they had set a KPI in 2012 to undertake new and strategic land bank expansion of 30,000 ha by FY2013 – FY2015. To date, THP have achieved 60% of the targeted land bank expansions via the acquisition of oil palm plantation in Bintulu, Sarawak (6,000 ha) and PT Persada Kencana Prima in

Market Access

Kalimantan (10,000 ha). Post-acquisition, THP’s total landbank as at 31 March 2015 has stood close to 105,000 hectares with Sarawak dominating 48% of the total landbank, followed by Sabah 24%, Peninsular 18% and Indonesia 8%. As such, Sarawak has turned out to be the biggest contributor in FFB production in 2014 accounting for 48% (2013: 43%) of the total FFB production, followed by Peninsular 32% and Sabah 20%. Table 1: THP’s Key Plantation Earnings Assumption and Drivers FYE: DEC

2008

2009

2010

2011

2012

2013

2014

2015F

Ave. Matured Area Harvested (Ha)

15,712

24,176

21,232

22,924

32,579

32,763

38,415

40,874

FFB Production (‘000 tone)

347,547

519,290

436,949

513,276

524,665

781,577

788,090

827,495

Yield per matured Ha(tone)

22.12

21.48

20.58

22.39

21.51

23.86

20.52

20.25

CPO - Oil Extraction Rate (%)

20.15

20.50

21.09

20.49

20.21

20.05

20.19

20.39

Ave. CPO Price (RM/MT)

2,760

2,050

2,617

3,096

2,661

2,200

2,277

2,300

Source: Company, M&A Securities

Table 2: Plantation Sector Operational Metrics Projection CPO Price (RM/MT) CPO Production (Million Tonnes) Palm Oil Export (Million Tonnes) Ending Stocks (Million Tonnes)

2014

2015F

2,408 19.7 17.3 2.0

2,300 20.5 18.5 2.05

Source: M&A Securities

Higher production costs. To recap, THP’s had recorded a +13% increase in CPO production cost, +18% jump in estate production cost and +11% elevation in mill manufacturing cost to RM1,298/MT, RM217/MT and RM63/MT respectively in FY14 against FY13 pressurised by higher production and costs associated with younger estates and younger age profile and hence, leading to a lower FFB yield of 20.52MT/ha (FY13: 23.86MT/ha). Management has guided that THP is expecting a 5% to 7% increase in estates cost for financial year 2015 that associated with younger estates further driven by 9,300 ha of new maturity and 7,500 ha of 2nd year maturity. In-line with the management guidance, we are of the view that with the 9,300 ha of area coming into

Noorhayati Maamor [email protected] 03-22821820 ext. 277

2

Company Highlights –TH Plantations Berhad maturity in 2015, 3,000 ha in the course of planting and 9,000 ha of greenfield are expected to be planted in the next couple of years and hence, higher cost of production and softer yields would prolong in the next two or three years. As such bottom-line would be lower or satisfactorily given the reasons mentioned above. Outlook. We are still positive on the long-term outlook of the sector given that palm oil and palm kernel oil are the world largest consumable edible oil. However, due to delayed impact of adverse weather condition in Malaysia and Indonesia last year coupled with tree stress effect, we expect

Market Access

FFB production growth and yield to be temporary supressed this year before picking up again in FY16 as more areas coming into its fundamental growth maturity. From the data we gathered, we understand that in 1Q15, THP’s FFB production has dropped 29% q-o-q and 20% y-o-y to 137,988 MT indicating that the trend is following the last quarter trend (4Q14: -17%; 3Q14: +26%) as monsoon flood early of this year has curbed harvesting and disrupting logistic movement that run concurrently with seasonally low cycles. However, THP’s FFB production has start to pick-up in the month of March 2015 where the production has growth by 23% m-o-m to 51,709 MT as the sector moved into growing up cycle production month that normally experience in the month of April till October. We assume the same trend would same experience by other plantation players too. Change to forecast. We have done some housekeeping exercise and came out with new FY15 and FY16 earnings forecast of RM26 million and RM60 million on THP respectively anchored mainly by: 1) CPO price assumptions of RM2,300/MT for 2015 and RM2,400/MT for 2016; 2) FFB yield performance; 3) OER capability; and 4) higher cost of production as younger estates require more upkeep and maintenance. Given that THP is a pure up-stream player, we believe that higher FFB production and better CPO extraction rate may moderate the impact of lower palm oil product prices and hence, cushioning THP’s earnings. As s such, earnings will correlate with the CPO price movement. With that, in every RM100/tonne change in CPO price would result in circa 9% - 10% change in THP’s 2015 projected earnings. Note that THP will tentatively issue their 1Q15 financial result on the 27th or 28th May 2015. Valuation & recommendation. We foresee THP current hick-up of higher production cost may pressurise their borrowing (gearing FY14: 0.46x; FY15F: 0.58x) as young mature areas would incur full fixed maintenance and overhead costs that comes with lower yield and thus, affecting the performance of THP coupled with high depreciation and amortisation charges that are expected to remain high going forward in tandem with the larger asset base. However, we are still positive on THP’s future outlook given its long-term prospect anchored by its 1) enlarged plantation land bank; 2) younger age profile of 9 years which provides visible revenue and earnings growth catalyst; and 3) high percentage of immature and young matured land over planted area of 87%. We have rolled forward our valuation to FY16 based on 20x PER over CY16 EPS of 7.4sen and thus, deriving a new target price of RM1.47 compared to RM1.45 previously. The stock is still a HOLD.

Noorhayati Maamor [email protected] 03-22821820 ext. 277

3

Company Highlights –TH Plantations Berhad

Company

Mkt. Cap (RM m)

Price (RM)

IOI CORP

26,412.9

KLK

EPS (sen)

P/E (X)

P/B (X)

ROE

Div. Yield

TP

Call

3.0

24.7

0.6

4.04

HOLD

2.7

2.6

13.5

2.7

21.50

HOLD

16.7

1.9

1.7

9.7

1.4

10.63

HOLD

26.8

19.6

2.0

1.9

6.4

1.5

3.20

HOLD

9.5

21.2

16.3

1.1

1.1

5.6

1.7

1.52

HOLD

11.9

22.4

19.0

2.4

2.2

11.1

1.1

2.38

HOLD

23.0

18.3

2.2

2.1

11.8

1.5

FY1

FY2

FY1

FY2

FY1

FY2

4.16

15.6

22.9

26.7

18.2

3.2

23,365.3

21.94

99.5

110.9

22.1

19.8

GENPLANTS

7,621.0

9.85

52.3

58.9

18.8

IJM PLANTS

2,949.9

3.35

12.5

17.1

TH PLANTS

1,370.0

1.55

7.3

TSH RESOURCES

3,064.0

2.26

10.1

Average Notes: FY1 is the current FY estimate Source: Bloomberg, M&A Securities

Table 4: Financial Summary YE: December (RM million) Revenue Operating profit PBT Net profit EPS (sen) Pre-tax margin Net profit margin PER (x) P/BV (x) ROE ROA Dividend (RM) Dividend Yield

FY12

FY13

FY14

FY15F

FY16F

376 190 180 151 17.9 48% 40% 8.7 1.2 17.3% 8.0% 0.03 1.9

470 91 71 63 7.2 15% 13% 21.6 1.1 5.5% 2.2% 0.04 2.3

489 69 58 48 5.5 12% 10% 28.3 1.1 4.2% 1.4% 0.02 1.3

533 80 34 26 2.9 6% 5% 53.7 1.1 2.2% 0.7% 0.01 0.3

650 130 88 65 7.4 14% 10% 21.1 1.1 5.1% 1.9% 0.02 1.3

KLCI Plantation Index vs. THP

Revenue and Net Profit

(YTD Performance)

(FY11-FY16F)

8.0

700

60%

4.0

600

50%

500 RM Million

0.0 -4.0 -8.0 -12.0

40%

400

30%

300

20%

200

10%

100

Bursa Plantation Index TH Plantations

Revenue Margin

2016F

2015F

2014

0% 2013

0 2012

13-May

1-May

19-Apr

7-Apr

26-Mar

14-Mar

2-Mar

18-Feb

6-Feb

25-Jan

13-Jan

-16.0

Operating Profit Margin

Source: Bursa Malaysia, M&A Securities

1-Jan

Market Access

Table 3: Peers Comparison – Stocks under Coverage

Operatingprofit

Source: Bloomberg, M&A Securities

Noorhayati Maamor [email protected] 03-22821820 ext. 277

4

Company Highlights –TH Plantations Berhad

M&A Securities

Market Access

STOCK RECOMMENDATIONS BUY Share price is TRADING BUY Share price is HOLD Share price is SELL Share price is

expected expected expected expected

to to to to

be be be be

≥+10% over the next 12 months. ≥+10% within 3-months due to positive newsflow. between -10% and +10% over the next 12 months. ≥-10% over the next 12 months.

SECTOR RECOMMENDATIONS OVERWEIGHT The sector is expected to outperform the FBM KLCI over the next 12 months. NEUTRAL The sector is expected to perform in line with the FBM KLCI over the next 12 months. UNDERWEIGHT The sector is expected to underperform the FBM KLCI over the next 12 months. DISCLOSURES AND DISCLAIMER This report has been prepared by M&A SECURITIES SDN BHD. Readers should be fully aware that this report is for informational purposes only and no representation or warranty, expressed or implied is made as to the accuracy, completeness or reliability of the information or opinion contained herein. The recommendation and opinion are based on information obtained or derived from sources believed to be reliable. This report contains financial forecast/projection based on our assumptions which may defer from the actual financial results announced by the companies under coverage. All opinions, estimates and assumptions are subject to change without notice. Analysts will initiate, update and cease coverage solely at the discretion of M&A SECURITIES SDN BHD. Investors are to be cautioned that value of any securities invested may fluctuate from time to time. We advise investors to seek financial, legal and other advice for investing based on the recommendation of our report as we have not taken into account each investors’ specific investment objectives, risk tolerance and financial position. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. M&A SECURITIES SDN BHD can accept no liability for any consequential loss or damage whether direct or indirect. Investment should be made at investors’ own risks. M&A SECURITIES SDN BHD and INSAS GROUP of companies, their respective directors, officers, employees and connected parties may have interest in any of the securities mentioned and may benefit from the information herein. M&A SECURITIES SDN BHD and INSAS GROUP of companies and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. This report may not be reproduced, distributed or published in any form or for any purpose. M & A Securities Sdn Bhd (15017-H) (A wholly-owned subsidiary of INSAS BERHAD) A Participating Organisation of Bursa Malaysia Securities Berhad Principal Office: Level 1,2,3 No.45 & 47,43-6 The Boulevard, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur Tel: +603 – 2282 1820 Fax: +603 – 2283 1893 Website: www.mnaonline.com.my

Noorhayati Maamor [email protected] 03-22821820 ext. 277

5