TH Plantations profits to stay flat

KUALA LUMPUR: TH Plantations Bhd's earnings for the second half of this year are expected to stay flat as palm oil prices are likely to trade rangebound, MIDF Research said.

Yesterday, the third month benchmark crude palm oil price on the Malaysia Derivatives Exchange traded unchanged to close at RM2,918 per tonne.

Palm oil prices have been on a four-month downtrend. In the last two weeks, it dipped below the "feel- good" psychological level of RM3,000 per tonne again. The decline can be attributed to the restructuring of andonesia palm oil taxes that seek to attract downstream investment there. 

Apart from that, a stronger US dollar is believed to have been hammering commodities prices, from energy to agricultural products. A stronger greenback makes commodities like palm oil more expensive to investors. When buyers have to pay more, the demand for palm oil decreases and that forces the prices to come down. 

MIDF Research, in its notes to investors yesterday, said TH Plantations had incurred higher production cost in the second quarter-ended June 2012 as a result of the costlier fertiliser. The group also had to spend extra money to contain pest and disease outbreaks in its Sarawak and Pahang estates.

"We believe the ongoing intensive fertiliser programme will continue to drag margins within these two years," the research house said. 

TH Plantations' second quarter earnings for the period ended June 2012 declined 38.2 per cent to RM19.89 million from a year ago, no thanks to lower harvest of oil palm fruits and higher production cost. 

The research house noted the group's earnings came in below expectation, accounting for only 30 per cent of full-year forecast.

In maintaining its "neutral" call on the group, MIDF Research kept its forecast of TH Plantations stock price unchanged at RM2.40. The target price was derived from next year's forecast price-to-earnings ratio of 15 times.

In the longer term, the research house expects TH Plantations to rake in higher earnings in view of its recent landbank expansion to 90,671ha, with 57,407ha already planted with oil palms.

Leave a Reply