Feb 20, 2012

THPLANT – MYR2.72 Short-Term Buy (Technical)

THPLANT  (stock code 5112) reached a significant weekly Wave 4 low at RM1.85  in August 2011 with grossly oversold and bullish chart signals. Due to all its positive indicators, it is likely to surge to its obvious upside Wave 5 targets (of MYR3.00, MYR3.38 and MYR4.04) and resistance level (and all-time high) of MYR2.73.

SHORT-TERM BUY (TECHNICAL) on dips for THPLANT, with stop-loss at MYR2.27thplantant chart abpve: THPlant Weekly chart (clcik to enlarge)

The weekly indicators (such as the CCI, DMI, MACD, Oscillator and Stochastic) are positive and now depict fine indications of THPLANT’s prolonged price strength. We expect THPLANT to remain firm on any dips to its support levels of MYR2.29 and RM2.72. It will attract some major buying at those levels. The only resistance level (and all-time high) of MYR2.73 will offer token selling activities. Our technical upside targets for THPLANT are MYR3.00, MYR3.38 and MYR4.04. Stop-loss is at MYR2.27.

below: THPlant Fundamentals and Technicalsthplant 
On 11 November 2011, THPLANT acquired 19,782ha of land, increasing its total land bank by 50% to 59,153 ha. Of the 19,782ha of land that was newly acquired, only 694ha was planted while the remaining portion is classified as “green-field”.  

The immediate impact on THPLANT’s profitability remains neutral. Our analyst estimates  that  the marginal increase in Fresh Fruit Branches (FFB) production from the acquired planted land would raise our net profit estimates by 2.2-3.4%, while  the  green-field  land would only generate significant impact on earnings after 2014 if THPLANT begins the planting in 2012. In the longer  term, THPLANT is expected to benefit from the new plantation but in the immediate term, our analyst has a Hold call on TH Plantations. 

Our fundamental analyst has a Neutral call on the plantation sector,  as Malaysian palm oil stockpiles remained high for the fifth month consecutively, at 2.01m tonnes. In view of the downward revision in soybean crop estimates by USDA and Oil World due to the weather, our plantation analyst is looking to lift our 2012 CPO average selling price  (ASP)  assumption by 7.7% to RM2,800/t (from RM2,600/t) this coming result season. We are also expecting February stockpiles to be lower (at 1.9m-2.0m tonnes) as February has fewer working days.

Currently, Maybank IB has a Hold call on THPLANT with a target price of MYR2.04 (which was exceeded in January 2012). A check of Bloomberg consensus data reveals that four other research houses have coverage on THPLANT, and all have buy calls on the stock. The stock currently has an indicated dividend yield of 4.7% and trades at PBR of 2.3x.

TH Plantations Berhad (THPLANT) is an investment holding company. It also cultivates oil palm, processes FFB, markets CPO, PO and FFB, as well as provides management services.

by Maybank Investment bank