05/04/2011 (The Borneo Post) - TH Plantation Bhd (THP), a plantation arm of Lembaga Tabung Haji (LTH), reported first quarter financial year 2011 (1QFY11) net profit, which came in at 28 to 30 per cent of consensus FY11 forecasts of RHB Research Sdn Bhd (RHB Research).

According to a report by the research firm, THP managed to record higher net profits of 23 per cent year-on-year (y-o-y) in 1QFY11, despite a three per cent y-o-y decline in turnover due to weaker fresh fruit bunch (FFB) production, which was down 10.7 per cent y-o-y.

This was a result of the improved margins brought about by the higher crude palm oil (CPO) price (up 43.8 per cent to RM3,471 per tonne) and palm kernel (PK) prices (up 121 per cent y-o-y to RM3,046 per tonne) achieved in 1QFY11.

Although this was higher than RHB Research’s projected RM3,100 per tonne for FY11, the analyst believed that THP might not be able to achieve such high prices from 2QFY11 onwards, given the recent fall in CPO prices to current levels of RM3,300 per tonne.

Based on its estimates, production costs achieved in 1QFY11 might have fallen slightly on a y-o-y basis.

However, RHB Research maintained its production cost estimates at RM1,100 to RM1,200 per tonne for FY11 to FY13, given the seasonality of quarterly production cost estimates.

The research house reported no change to FY11 to FY13 forecasts for the time being. It highlighted THP’s earnings sensitivity to CPO price movements, where it estimated that every RM100 per tonne change in CPO prices would impact net earnings by 10 to 12 per cent per annum.

RHB Research listed the assessed risks as a reversal in crude oil price trend, weather abnormalities, change in emphasis on implementing global bio-fuel mandates and trans-fat policies and a faster- or slower-than-expected global economic recovery.

The research house upheld its view that THP remained an undervalued stock which would appeal to both growth and defensive investors.

In concluding its report, RHB Research underlined the fact that THP’s dividend yield remained an attractive six per cent per annum, based on THP’s dividend policy of paying out a minimum of 50 per cent of earnings every year.

RHB Research further stated an ‘outperform’ recommendation, having noted that it would be reviewing its earnings and target price soon, in light of a recent company visit.

Based on unchanged FY11 target price earnings of 10 times, RHB Research’s analyst maintained the fair value at RM2.45, compared with the last traded price of RM2.18 per share.