TH Plantation (THP)’s 1Q23 core losses after tax and minority interests (LATMI) was within Maybank Investment Bank Bhd (Maybank IB)’s expectations but below the consensus. While 2Q core earnings will likely remain lacklustre, Maybank IB expects earnings to play significant catch up in 2H.
“Given limited downside to our trading price, we tactically upgrade THP to a HOLD (from SELL) as we believe most of the negatives have now been largely priced-in by the market,” said Maybank IB in a recent report.
1Q23 headline profit after tax and minority interest of RM7 million was in part boosted by unrealised net FX gain (RM6 million) and net FV gain on biological assets (RM2 million).
Adjusted, THP relapsed into the red with a core LATMI of RM1.7 million as core operating profits were barely sufficient to cover interest expense, taxes and profit margin on perpetual sukuks.
At the operating level, 1Q core earnings before interest and tax was weaker at RM21 million due to lower crude palm oil average selling price and higher production costs, mitigated by higher sales volume on inventory drawdown during the quarter.
“We understand THP has completed 20% of its full-year fertiliser plan in 1Q23. It has also engaged in minimal forward sales,” said Maybank IB.
1Q fresh fruit bunch (FFB) output grew YoY to 0.14 megatonne as better output from Sabah and Sarawak offset lower output in Peninsular Malaysia. 1Q output met 19% of Maybank IB’s full-year FFB forecast, within historical ranges. They are keeping their FFB growth forecast of +5% YoY for FY23E.
Maybank IB is also keeping their earnings forecasts anticipating much stronger earnings in 2H23 on sharply stronger output, on improving labour situation and lower cost, especially in Q4. THP’s key catalyst remains the speed of its deleveraging exercise to improve its balance sheet position. It continues to earmark RM782 million of assets for disposal as at end-Mar 2023.
