TH Plantations Bhd (THP) reported an improvement in its 2Q24 performance, though results fell short of estimates. The company posted a headline net profit after tax and minority interest (PATMI) of RM5.9 million for the quarter, reflecting a substantial year-on-year increase of 630%, but a decline of 31% compared to the previous quarter. This result was boosted by a fair value gain on biological assets of RM4.5 million, though it was offset by an unrealised foreign exchange loss of RM5.9 million. The core PATMI for 2Q24 adjusted for these factors stood at RM7.1 million, up 104% from the previous quarter but down from RM10.7 million in the same quarter last year. For the first half of 2024, core PATMI amounted to RM10.5 million, compared to a loss after tax and minority interest (LATMI) of RM12.4 million in 1H23.
Analysts at Maybank have reacted to the results by adjusting their recommendations. Given the limited downside to the target price (TP), THP's rating has been upgraded to HOLD from SELL, with an unchanged TP of RM0.58 based on a 0.7x FY24E price-to-book value (PBV). Despite a fair current valuation at 14x FY24E price-to-earnings ratio (PER), THP's valuation remains higher compared to its small and mid-cap peers, who typically trade at lower valuations. Analysts prefer Sarawak Oil Palms (SOP) with a BUY rating and a target price of RM3.18, given its more attractive valuation.
The positive performance in 2Q24 was attributed to higher crude palm oil (CPO) average selling prices (ASP) and improved fresh fruit bunches (FFB) output. The adjusted core earnings before interest and tax (EBIT) rose to RM38.4 million, reflecting a significant year-on-year increase of 271% and a quarter-on-quarter rise of 16%, driven by a higher CPO ASP of RM3,927 per tonne and an increase in FFB output by 17% year-on-year and 18% quarter-on-quarter. The company's all-in cost-to-customer fell to RM2,810 per tonne in 1H24, marking a 12% decrease compared to the previous year. However, there remains uncertainty regarding the application of fertiliser compared to the full-year plan.
Looking ahead, TH Plantations has maintained its forecast for an 8% growth in FFB output for FY24E, which aligns with historical averages. Despite revisions to the industry-wide CPO ASP forecasts, THP's core earnings per share (EPS) forecasts for FY24E-26E have remained relatively unchanged. The company's key focus will be on its deleveraging efforts to enhance its balance sheet position, with RM802 million worth of assets earmarked for disposal as of the end of June 2024.