TH Plantation - Limited Growth

TH Plantations (RM1.57; Cease coverage; THP MK)
Limited growth potential
We expect 1Q10F earnings to be c.10-12% lower q-o-q (c.RM20m), mainly dragged down by seasonally weaker FFB production. We estimate that FFB production fell by 34% q-o-q in 1Q10. However, this should be partly mitigated by the 12% increase in average CPO spot prices. On a y-o-y basis, 1Q10 earnings should be c.2.5x that of 1Q09 despite est.11% decline in FFB production. The 33% jump in average CPO spot prices should help mitigate the weak production. The drop in production could be due to the dry spell that hit Peninsular which may have affected THP’s FFB yield. About 48% of THP’s plantation is located in Peninsular Malaysia, while the remaining 52% are in Sabah and Sarawak.  

We cease coverage on the stock, as we foresee limited growth potential in FY10F-12F given its limited plantable land bank available. Our most recent call on the stock is Hold with a RM1.60 DCF-based TP. Currently, 93% of its 39,159ha land bank is already planted with oil palm. We are of view that the only way for THP to grow is through land acquisitions and this remains to be seen. Although we understand there are negotiations between THP and its parent, Lembaga Tabung Haji, on potential land acquisitions, nothing has been confirmed at this juncture. The Group targets to expand its land bank to 50,000ha by 2012. For now we have not imputed any new land
acquisition in our forecasts. Apart from that, we project TSH to record single digit FFB production growth of 0-4% over  the next 3 years given that c.55% of its matured area is planted with old palm oil trees (i.e. above 18 years of age).

source: HWDBS Vickers