TH Plantations may see more red in Q4FY18

The government will draw up new strategies and approaches to combat the anti-palm oil campaign by the European Union (EU) which give negative perceptions of the palm oil industry in this country.

KUALA LUMPUR: TH Plantations’ upcoming Q4 FY18 results may include asset impairment(s) to clean up its balance sheet, Maybank Investment Bank Research says as it lowers its target price (TP) by 20% to 59 sen from 74 sen.

It said on Tuesday the lower TP was  to incorporate potential negative earnings surprises while its revised TP of 59 sen was based on lower 0.4 times trailing price/net tangible asset (previously 0.5 times), at -1.5 standard deviation of its updated five-year mean. 

“Despite a 41% fall in share price over the past year, we are keeping TH Plantations as a Hold on balanced risk-reward,” it said.

Maybank Research expects TH Plantations to report a 4Q18 core net loss of RM12.8mil (+4% on-quarter), bringing FY18 core losses to RM32.2mil. 

The Q4 core loss is due to low industry-wide crude palm oil spot average selling price of RM1,920 per tonne, which was significantly below its FY18’s all-in cost of production estimated at RM2,430 a tonne.

“Given the changes in TH Plantations’ board composition (throughout 2018) and recent appointment of new CEO (Muzmi, effective Feb 11), we do not discount the possibility of a clean-up exercise for Q4, more so since TH Plantations has reported two quarters of core losses. 

“Hence, we believe there is a risk of asset impairment(s) on its underperforming assets,” it said.

The research house said operationally, TH Plantations reported a +3% on-year growth in FY18 fresh fruit bunches (FFB) output to 910,000 tonnes, in-line with its estimates. 

“For FY19, we forecast a slightly better FFB output growth outlook of +5% on-year but conservatively impute only a +2% growth forecast for FY20. As for CPO average selling prices, we are keeping our forecasts unchanged at RM2,350 a tonne for FY19 and RM2,500 for FY20.

“Although TH Plantations’ share price has rebounded from its recent low and the stock now trades at 0.4 times price-to-book value which is below its 2009 GFC low, and an implied adjusted enterprise value/hectare of just RM29,912 (near replacement cost), we are not in a hurry to jump into the bandwagon given its near term weak earnings outlook.

“Its relatively high net gearing of 0.7 times as at Sept 30, 2018 may just inch higher if the 4Q18 impairment materialises,” sayd Maybank Research.