TH Plantations up 1%, trades ex-dividend

KUALA LUMPUR (May 2) : TH PLANTATION []s Bhd rose as much as 1.2% as investors chased the stock which trades ex-dividend on Wednesday. The final lodgement date falls on Friday.

Shares of TH Plantations gained three sen to RM2.62 before trading lower at RM2.61 at 10.24am with some 230,000 shares done.

The firm plans to reward shareholders with a first and final single-tier dividend of 12.5 sen a share for financial year ended December 31, 2011. The dividend translates into a 4.8% yield based on the stock’s latest closing price.

The company said last month net profit fell 40% to RM13.07 million in the first quarter to March 31, 2012 from RM 21.83 million a year earlier due to higher cost of sales and tax expense. Revenue, however, grew 27% to RM95.05 million from RM75.06 million.



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Stocks to Watch Dutch Lady, Opensys, TH Plantations, SunREIT, SEGi

KUALA LUMPUR (April 25): Malaysian stocks are expected to exhibit weak technical dynamics on Thursday against global economic volatility and domestic pre-election sentiment.

Analysts said crucial world highlights include the lack of clarity over European countries' ability to manage their sovereign debt woes, and the direction of US monetary policy, the effects of which may dictate the direction of global equities.

The FBM KLCI erased earlier gains to close in negative territory, with a 2.93-point decline to 1,579.35 on Wednesday.

Stocks to watch on Thursday are DUTCH LADY MILK INDUSTRIES BHD [], Opensys (M) Bhd, TH PLANTATION []s Bhd, Sunway Real Estate Investment Trust (SunREIT), and SEG INTERNATIONAL BHD [] (SEGi).

Dutch Lady and Opensys shares will trade ex-dividend on Thursday. Dutch Lady, a manufacturer of dairy products, plans to reward shareholders with a dividend of RM1.30 a share comprising a single-tier interim payout of 50 sen and a special portion of 80 sen for financial year ending Dec 31, 2012.

Opensys, an information TECHNOLOGY [] firm, plans to reward shareholders with a first interim tax-exempt dividend of 5% which is equivalent to 0.5 sen a share for financial year ending Dec 31, 2012.

MIDF Amanah Investment Bank Bhd downgraded TH Plantations shares to a "trading sell" from "neutral", with a lower target price of RM2.12 compared with RM3 previously. This follows a downward revision in MIDF's earnings forecast for TH Plantations by 41% and 33% in financial years ending Dec 31, 2012 and 2013 respectively.

SunREIT said its third quarter (3Q) net profit rose 9% from a year earlier, as the group registered higher turnover from an expanded property portfolio. In a statement to the exchange, SunREIT said net profit came to RM47.55 million against RM43.73 million previously. Revenue was up 19% to RM98.09 million from RM82.35 million.

Private equity firm Navis Capital has made a takeover offer for the remaining shares it does not own in higher education provider SEGi. This follows a shareholders' agreement between Navis and SEG managing director Datuk Seri Clement Hii Chii Kok, who is also the single-largest shareholder in the education entity. This has, in turn, triggered a mandatory general offer obligation for the remaining stake in SEGi. Navis, which already owns 27.84% in SEGi, is offering RM1.714 for each share, and RM1.214 for each warrant in the higher education firm.



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KLCI dips to below 1,580-level, blue chips drag

KUALA LUMPUR (April 25): The FBM KLCI closed below the 1,580-point level on Wednesday, reversing its gains earlier in the morning session, weighed by losses including Genting, Tenaga, CIMB, KLK and Petronas Dagangan.

The index fell 2.93 points to 1,579.35.

Market breadth was weak with 405 losers, 315 gainers and 346 counters trading unchanged. Volume was 1.47 billion shares valued at RM1.53 billion.

Meanwhile, global shares rose on Wednesday ahead of the U.S. Federal Reserve's policy meeting, due mainly to signs of good demand for euro zone sovereign debt before a German bond sale, and some strong corporate earnings, according to Reuters.

Markets could take their cues from several planned public speeches by European Central Bank officials, which will be scrutinised for any signs it would consider more liquidity operations if the euro zone's problems worsened, it said.

At the regional markets, Japan’s Nikkei 225 rose 0.98% to 9,561.01, Taiwan’s Taiex added 0.86% to 7,563.18, and the Shanghai Composite Index gained 0.75% to 2,406.81 and Singapore’s Straits Times Index added 0.20% to 2,980.19.

Meanwhile, Hong Kong’s Hang Seng Index lost 0.15 % to 20,646.29 and South Korea’s Kospi shed 0.07% to 1,961.98.

Among the decliners on Bursa Malaysia, BAT fell 28 sen to RM55.12, KLK and TH PLANTATION []s lost 16 sen each to RM23.82 and RM2.65, CSL down 15 sen to RM1.48, UMS 14 sen to RM1.66, Yeo Hiap Seng 13 sen to RM2.88, Toyo Ink, Tanjung Offshore and MMC Corp down 12 sen each to RM1.36, 78 sen and RM2.62 respectively, while Quality Concrete lost 11 sen to RM1.24.

Utopia was the most actively traded counter with 186.1 million shares done. The stock added one sen to 9.5 sen.

Other actives included Ariantec, Ramunia, CSL, Metronic, Astral Supreme, HWGB and JCY.

Meanwhile, the gainers included Panasonic, UMWE, The Store, NSOP, SPB, Batu Kawan, Cepco, TDM and Scientex.



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TH Plantations among top decliners on weaker 1Q profit

KUALA LUMPUR (April 25) : TH PLANTATION []s Bhd fell as much 3% to be among major decliners across the exchange on the company’s weaker first quarter (1Q) profits.

Shares of TH Plantations declined nine sen to settle at RM2.72 at lunch break with some 800,000 shares done.

The company said on Tuesday net profit fell 40% to RM13.07 million in the quarter to March 31, 2012 (1QFY12) from RM 21.83 million a year earlier due to higher cost of sales and tax expense. Revenue, however, grew 27% to RM95.05 million from RM75.06 million.

While the 1Q numbers are not expected to augur well for the company’s shares, analysts have, however, directed the spotlight on TH Plantations plan to reward shareholders with a first and final single-tier dividend of 12.5 sen a share for financial year ended December 31, 2011.

“Although the lacklustre 1QFY12 performance would be negative to sentiment, the upcoming ex-date of its 2011 final dividend of 12.5sen/share on May 2,2012 will provide some support to the share price, we believe,” Maybank Investment Bank Bhd analyst Ong Chee Ting wrote in a note.

“We maintain our earnings estimates for now pending further clarification from management,” Ong added. Maybank is maintaining its target price of RM2.75 and “hold” call for TH Plantations shares.



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KLCI edges down 0.1% at mid-day break

KUALA LUMPUR (April 25): The FBM KLCI edged down 0.1% at the mid-break on Wednesday in choppy trade, weighed by losses at key blue chips including Genting, Tenaga and Petronas-linked counters.

The benchmark index was down 0.81 of a point to 1,581.47 at the mid-day break.

Gainers trailed losers by 271 to 302, while 318 counters trade unchanged. Volume was 777.12 million shares valued at RM621.37 million.

The ringgit weakened 0.04% to 3.0638 versus the greenback, crude palm oil futures fell RM3 per tonne to RM3,460, crude oil gained 21 cents per barrel to US$103.76 and gold added 10 cents an ounce to US$1,642.38.

Meanwhile, Asian shares rose on Wednesday, buoyed by firm U.S. corporate earnings, signs of an improving U.S. housing market, and healthy demand for euro zone sovereign debt, while investor focus shifted to the Federal Reserve's policy meeting.

Markets will be looking for the Fed's economic assessment and clues to future monetary policy, including the probability of a third round of quantitative easing, when it ends its two-day meeting later on Wednesday.

At the regional markets, Japan’s Nikkei 225 gained 0.98% to 9,560.47, Hong Kong’s Hang Seng Index edged up 0.08% to 20,693.10, the Shanghai Composite Index rose 0.33% to 2,396.68, Taiwan’s Taiex gained 0.83% to 7,561.07, South Korea’s Kospi was up 0.23% to 1,967.99 and Singapore’s Straits Times Index was up 0.09% to 2,976.93.

Maybank Investment Bank Bhd head of retail research and chief chartist Lee Cheng Hooi in a note to clients on Wedneday said the FBM KLCI declined 1.52 points to close at 1,582.28 on Tuesday.

“Its resistance areas of 1,582 and 1,609 will cap market gains, whilst the weaker support areas are located at 1,562 and 1,579.

“Despite the US markets’ better tone last night, we may be in for another day of heavy selling here,” he said.

On Bursa Malaysia, Petronas Dagangan was the top loser and fell 20 sen to RM19.08, Tradewinds PLANTATION []s fell 15 sen to RM5.51, UMS 13 sen to RM1.67, Yeoh Hiap Seng 12 sen to RM2.89, Aeon Credit 11 sen to RM9.87, MMC Corp 10 sen to RM2.64, TH Plantations nine sen to RM2.72, Tanjung Offshore 8.5 sen to 81.5 sen and Rapid fell eight sen to RM2.49.

Meanwhile, Genting and Tenaga fell four sen each to RM10.52 and RM6.49, KLK eight sen to RM23.90 and Petronas Gas fell six sen to RM16.88.

Utopia was the most actively traded counter with 108.85 million shares done. The stock added one sen to 9.5 sen.

Other actives included Ariantec, Ramunia, CSL, Metronic, JCY, Karambunai and Astral Supreme.

Gainers included Panasonic, UMW, TDM, KPJ shares and warrants, Pintaras, Ekovest, MPI and Carlsberg.



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MIDF Research downgrades TH Plantation to Trading Sell, cuts TP to RM2.12

KUALA LUMPUR (April 25): MIDF Research has downgraded TH PLANTATION []s Bhd to Trading Sell from Neutral and cut its target price to RM2.12 from RM3 previously following its earnings revision for the company.

In note Wednesday, MIDF Research however said it was applying a higher target PER in order to reflect TH Plant’s stable and mature profile.

The research house said its new target price of RM2.12 was derived from 13.0x EPS12 which was one standard deviation above its 3-year historical average of 10.8x (which is our previous valuation).

“We believe that the positive news flow of its future expansion has been priced in and the weak 1Q12 numbers would dampen investors’ sentiment and be an excuse for investors to take profit. At current price TH Plant is pricey, trading at 17.2x forward PER.

“We expect TH Plantation to come under selling pressure in the short term and hence downgrade it to Trading Sell,” it said.



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CIMB Research has technical sell on TH Plantations at RM2.85

KUALA LUMPUR (March 30): CIMB Equities Research has a technical sell on TH PLANTATION [] at RM2.85 at which it is trading at a price-to-book value of 0.5 times.

It said on Friday prices broke below its support trend line on Thursday on rising volume. Prices also closed below its 30-day SMA in the process.

“With both technical indicators showing weakness, the odds favour the bears at the moment. One can expect more downside in the near term,” it said.

CIMB Research said prices could ease towards RM2.70 and RM2.42-2.48 next as long as prices stay below RM2.99.

“One can also place their stop above RM2.88, the support turned resistance trend line,” it said.



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CIMB Equities Research has technical buy on TH Plantations at RM2.87

KUALA LUMPUR (March 9): CIMB Equities Research has a technical buy on TH PLANTATION []s at RM2.87 at which it is trading at a price-to-book value of 2.3 times.

It said on Friday the share price broke out of its ascending triangle pattern yesterday. If the candles can continue to hold on above the support-turned-resistance trend line at RM2.84, there is a high possibility that this uptrend may be extended. The next resistance levels are RM3.10 and RM3.25.

“Indicators are also in favour of the bulls. MACD signal line is hovering in the positive territory while RSI is above the 50pts mark.

“Traders may start to take some position here to ride on the breakout run. However, always put a stop at below RM2.78-2.68 to limit downside risk,” said CIMB Research.



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TH Plantations earnings dn 11.3% to RM37m in 4Q

KUALA LUMPUR: TH PLANTATION []s Bhd recorded a 11.3% fall in profits to RM37.71 million in the fourth quarter ended Dec 31, 2011 from RM42.52 million a year ago, due to maintenance carried out during the quarter.

It said on Tuesday, Feb 21, revenue increased by 1.99% to RM130.09 million from RM128.53 million. Earnings per share were 7.41 sen compared to 8.71 sen. It proposed dividend per share of 12.50 sen.

TH Plantations said the fall in profit was attributed to extensive fertilising activities and maintenance during the quarter under review.

The increase in revenue was due to higher sales volume of fresh fruit bunches (FFB) sold to external mills by TH Plantations Saribas Sdn Bhd, a subsidiary of TH Plantations.

The directors proposed a first and final ordinary dividend of 12.50 sen under the single tier system amounting to RM 63.44 million.

For the year ended Dec 31, 2011, net profit increased 39.5% to RM124.83 million from RM89.48 million. Revenue rose 18.8% to RM434.86 million to RM365.97 million.



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CPO prices at 8-month high, may rise further

KUALA LUMPUR (Feb 20): Crude palm oil futures rose to RM3,3260 per tonne at midday on Monday, underpinned by firmer demand and weaker first quarter production in Borneo due tail end effects of 1QCY10 drought, analysts said.

At midday, CPO for third-month delivery was up RM18 to RM3,260, the highest since June 14, 2011.

News reports said China's move to ease its policy had helped nudged commodities higher while an improvement in demand prospects and technical outlook also provided support.

OSK Research said CPO prices staged a technical breakout last Friday and it thinks CPO price will head higher to RM3,465 in the medium term.

“This is consistent with our sector view that any upside palm oil price is to have will happen in the first quarter or not at all. Seasonally palm oil price tends to peak in 1Q, carrying over buying momentum from 4Q,” said the research house.

At midday, among the PLANTATION []s which posted share price gains were BLD Plantations, up 10 sen to RM10.10, Glenealy 18 sen to RM7.18, TH Plantations eight sen to RM2.80, Hap Seng Plantaions four sen to RM3.13 and Kim Loong, also four sen to RM2.64.



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RHB Research maintains Outperform on TH Plantations, FV RM3.15

KUALA LUMPUR (Feb 17): RHB Research is maintaining its outperform call on TH PLANTATION []s while it raised the fair value to RM3.15 from RM3.

It said on Friday that TH Plantations was joining the ranks of the mid-cap plantation stocks.

RHB Research highlighted four key points: 1) Strong FFB production growth for FY11 achieved; 2) Production costs to rise in FY12, on higher labour and fertiliser costs; and 3) Work has started on TH Plantations’ new land acquisitions already; and 4) More acquisitions in 2012?

“With TH Plantations’ recent land acquisition of 19,782ha, bringing total landbank to 58,895ha, it has achieved its KPI target of growing its landbank to 50,000ha by end-2011.

“We believe TH Plantations’ next stage of expansion could come from some of Lembaga Tabung Haji’s landbank that THP is currently managing. We highlight, however, that we would only be positive on any acquisitions provided the earnings accretion from the new landbank is greater than the potential dilutive effect of new shares issued,” the research house said.



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KLCI slips at mid-morning as regional rally takes a breather

KUALA LUMPUR (Jan 27): The FBM KLCI slipped at mid-morning on Friday, in line with the weaker sentiment at key regional bourses as markets took a breather from the recent rally.

At the global markets, a broad asset rally inspired by the US Federal Reserve's pledge to keep rates low paused on Friday, as investors sought to gauge how sustainable the burst of optimism will be while waiting for the outcome of crucial Greek debt talks, according to Reuters.

The FBM KLCI fell 3.74 points to 1,520.12 at 10am, weighed by losses at select blue chips.

Gainers edged losers by 235 to 205, while 252 counters traded unchanged. Volume was 538.98 million shares valued at RM369/81 million.

At the regional markets, Japan’s Nikkei 225 edged down 0.02% to 8,847.62 and South Korea’s Kospi shed 0.14% to 1,954.48, while Hong Kong’s Hang Seng Index added 0.24% to 20,487.90 and Singapore’s Straits Times Index gained 0.25% to 2,901.54.

BIMB Securities Research in a note Jan 27 said it was a mixed trading day on Wall Street on Thursday from a mixed batch of earnings and economic data in the US.

Lower new home sales, higher durable goods orders and higher jobless claims had all placed investors on an indecisive mode, it said.

As a consequence, the Dow Jones Industrial Average erased early gains to end the session 22 points lower, it said.

The research house said whilst negotiations in Athens are still ongoing, most European indices reversed their losses from the past few sessions to chalk up impressive gains possibly on a technical rebound.

As for Asia, equity performances remain strong with almost all closed on a high, it said.

“Locally, the FBM KLCI gained 4 points to close above the 1,520 mark with interests again centred on the lower liners and we expect the same for today.

“It is interesting to note that the MYR is gaining momentum against the greenback hovering at RM3.04/US$1 indicating that funds may be flowing back into the country again.

“Recent calls to overweight the PLANTATION [] sector are bearing fruits and our top calls are Hap Seng Plantations and TH Plantations which are still low on valuations,” it said.

Among the decliners on Bursa Malaysia, Genting Plantations fell 25 sen to RM9.40, TDM 13 sen to RM4.29, Fima Corp 12 sen to RM6.14, Hong Leong Industries nine sen to RM4.30, Public Bank eight sen to RM13.32, Kossan seven sen to RM3.40, while Aeon, Delloyd and Can-One fell six sen each to RM7.40, RM3.44 and RM2.03.

Gainers included IJM Corp, Scicom, Nestle, Hartalega, DRB-Hicom, AZRB, Amway, Shell and MISC, while the actives included TMS, Karyon, DBE Gurney, Jotech, UEM Land and DRB-Hicom.



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RHB Research maintains overweight on plantations

KUALA LUMPUR (Jan 11): RHB Research Institute said Malaysia’s crude palm oil (CPO) production fell by 8.2% on-month in December, while exports fell by a slightly smaller 4.5% on-month.

It said on Wednesday that on a year-on-year basis, production rose by 21.3% on-year in December (+11.3% 2011), while exports rose by 23.1% on-year in December (+7.9% 2011).

RHB Research said as a result, closing CPO stock levels fell by 1.5% on-month to 2.04 million tonnes in December (from 2.07 million tonnes in November).

“We are now well and truly in the low season for CPO, although we suspect the slowdown in production was exacerbated by the wetter-than-usual weather patterns.

“As a result of the lower CPO stock levels, the stock/usage ratio in December fell to 10.36% (down from 10.5% in November and up from 8.7% in December 2010),” it said.

RHB Research said it had examined a lot of the supply risks in our previous reports, in particular from the onset of La Niña.

“We maintain our CPO price assumptions of RM3,100 a tonne for CY12 and RM2,900 a tonne for CY13.

“Due to the continued strength in liquidity in the market, we believe the PLANTATION [] sector will continue to benefit from these liquidity flows and are therefore upping our PER valuation targets by 1.0 times for all the stocks under our coverage.

“Our Overweight call on the sector is maintained, with five Outperforms (Genting Plant, Sime Darby, TH Plantations, First Resources and CBIP), two Market Performs (IOIC and IJMP) and one Underperform (KLK). Our top picks remain upstream players like Genting Plantations and TH Plantations, as we believe the risks faced by more integrated players are rising, due to the new disadvantageous Indonesian export tax structure,” it said.



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BIMB Securities cautiously optimistic in 2012

What does 2012 hold for equity markets? After a volatile 2011 that saw financial markets tumble and investor sentiment rattled by the debt crisis in the US and eurozone, geopolitical upheavals and natural disasters, how will the local stock market fare in the New Year? BIMB Securities head of research Kenny Yee shares insights with The Edge Financial Daily’s Surin Murugiah.

What is your outlook for the Malaysian stock market and economy for 2012?
We are cautiously optimistic for 2012. Though the Asian region remains solid, like others our concerns stem on the progress in the eurozone and how it is going to pan out following numerous fund injections into the region.

What is your target for the FBM KLCI for 2012?
We have 1,600 as our preliminary target for 2012 at par to our market’s average PE of around 15.5 times.

Yee believes a full-blown crisis can be averted with regards to the euro-debt crisis.

How do you think the euro debt crisis will play out, and what impact will it have on Malaysia?
Judging from the more proactive approach by the policymakers, we believe a full-blown crisis can be averted. Nonetheless, our concerns stem from the intensity of the crisis and the aftermath on the global financial entities. With regards to the impact on Malaysia, though our economy is more domestically driven, nonetheless we are not insulated on the export front.

The years 2010 and 2011 were seen as years of M&A (merger and acquisition) activities, and the government’s economic transformation programme. What do you see as the domestic theme for 2012?
We believe the M&As as initiated by the GLICs (government-linked investment companies) to continue as part of the process to rationalise the shareholdings in GLCs (government-linked companies) and would have positive implications on the stock market.

As for the themes for 2012, our focus remains on the construction and oil and gas sectors. The plantation sector could offer an interesting proposition as well.

If the general elections are held in 2012, as widely expected, how do you expect the market to react, pre and post elections?
We have done some analysis on the past five GEs and there are no correlation between the general election on the stock market.

What sectors do you like for 2012?
Consumer, construction, oil & gas and possibly plantation.

What are your top stock picks and why?
Construction: Benalec Holdings Bhd (Rather insulated from external vagaries, most projects are domestic centric and strong order book.)
Oil & gas: Uzma Bhd (An up- and-coming oil & gas player. With expertise in the upstream segment).
Dialog Group Bhd (Strong orderbook backed by higher recurring income.)
Plantation: TH Plantations Bhd (improving prospects from recent land acquisitions)

Your wish list for the year?
Eurozone soft landing and flow of foreign funds back to Asia.



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Plantation stocks advance on commodity rally

Kuala Lumpur Kepong Bhd gained 1.9 percent to RM23.44, on course for a record close, as global commodities posted the biggest rally in almost eight months on speculation that increased factory output in countries ranging from China to the U.S. signals increasing demand for raw materials.

The Standard & Poor’s GSCI Spot Index of 24 commodities rose 3.4 percent to settle at 666.55 yesterday, the largest gain since May 9.

TH Plantations Bhd rose 2.3 percent to RM2.24, while Kulim Malaysia Bhd added 1.4 percent to RM4.38.

The March delivery palm oil contract advanced 1.6 percent to RM3,225 (US$1,027) per metric ton on the Malaysia Derivatives Exchange yesterday, the highest close since Nov. 18. -- Bloomberg



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CIMB Research has technical buy on TH Plantations at RM2.19

KUALA LUMPUR (Jan 4): CIMB Equities Research has a technical buy on TH PLANTATION []s at RM2.19, at which it is trading at a price-to-book value of 1.9 times.

It said on Wednesday TH Plantations broke out of its triangle resistance on Tuesday.

“If prices can continue to hold above this level (now at RM2.17), there is a good chance that prices may push for one more upleg, possibly towards the RM2.28 high again. The following resistance levels are RM2.40 and RM2.55,” it said.

CIMB Research said the MACD signal line is poised for a positive crossover while RSI has also hooked upward. Hence, we think the bulls have the upper hand here.

It said aggressive traders may start to nibble now. However, always put a stop at below RM2.08 to keep loss tight.



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RHB Research maintains overweight on plantations sector

KUALA LUMPUR (Jan 3): RHB Research Institute is maintaining its Overweight on the PLANTATION []s sector, with five Outperform calls and three Market Perform calls.

It said on Tuesday that it has Outperform calls on Genting Plantations, Sime Darby, TH Plantations, First Resources and CBIP while the three Market Perform calls are IOI Corp, KLK and IJM Plantations.

“Our top picks remain upstream players like Genting Plantations and TH Plantations, as we believe the risks faced by the more integrated players are rising, due to the new disadvantageous Indonesian export tax structure,” it said.

RHB Research said recently, several developments have led it to believe that the risk of CPO prices rising above market expectations is increasing, particularly in 1H2012.

It said the weather is now officially in La Niña territory; 2) Impact of La Niña on soybean supply is a high risk factor; 3) Any crop losses would have knock-on effects on CPO demand and prices; 4) Rising crude oil price and its close correlation with CPO prices; and 5) Continued narrowing of the price discount between CPO and other competing vegetable oils.

“We maintain our CPO price assumptions of RM3,100 a tonne for CY12 and RM2,900/t for CY13. For CY11, our price projection remains unchanged at RM3,100 even though YTD average price is RM3,274. We are not revising our forecasts for 2011 to be conservative, as we believe most plantation companies would not necessarily be able to achieve prices so close to the spot price,” it said.



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One-year reprieve from IAS 41 for planters

KUALA LUMPUR: Public-listed plantation companies have the option of deferring the adoption of International Accounting Standard (IAS) 41 Agriculture for another year, according to the Malaysian Accounting Standard Board (MASB).

The accounting body said this last month when it announced a new MASB approved accounting framework, the Malaysian Financial Reporting Standards (MFRS Framework).

The issuance was made in conjunction with MASB’s plan to converge with International Financial Reporting Standards (IFRSs) in 2012.

The MASB said the MFRS Framework is to be applied by all other than private entities starting Jan 1, with the exception of entities that are within the scope of MFRS 141 Agriculture and IC Interpretation 15 Agreements for Construction of Real Estate (IC 15). MFRS 141 is the equivalent of IAS 41.

This is to accommodate potential changes as the International Accounting Standards Board is planning to issue a new standard that would subsume IC 15 and is like to amend IAS 41.

“If you want to adopt it, you can. But if you choose not to, that gives you a respite of one year. By the time the revised standard is out, you can adopt the new standard, but if not, you won’t be in compliance with IFRS even though you are in compliance with Malaysian standards,” Lee Kok Wai, partner at Crowe Horwath, explained.

“Companies may choose to go ahead or defer one year. MASB gave its views at the National Standard Setters meeting in New York in March with the hope that the standard would be amended. MASB achieved its objective by putting a review of this standard,” said James Chan, a partner at Crowe Horwath.

Lee: By the time the revised standard is out, you can adopt the new standard.

Chan: MASB achieved its objective by putting a review of this standard.

Loh: You have IAS 2 on inventories which cover fruit but exclude the producers - the trees.

Loh Kam Hian, audit partner at KPMG, explained that IAS 41 came about from the need to have a standard for each line of asset and liability reported in the statement of financial position.

“Where do biological assets come in? You have IAS 2 on inventories which cover fruit but exclude the producers — the trees. You will find IAS 16 for fixed assets but again this excludes forest assets.”

“So there’s a gap, there was no standard governing the bearer, the biological assets. Hence IAS 41 to bridge the gap,” said Loh.

Malaysian plantation companies, which have been using the historical cost method in valuing their biological assets, had previously voiced concern about the implementation of IAS 41. IAS 41 requires companies involved in agriculture activities, for example livestock farming, oil palm planting and even timber harvesting, to fair value their biological assets at each balance sheet date.

While the cost method is simple, fair valuation requires judgement in the assumptions applied in the financial model, for example the discount rate, the growth rate, the life expectancy of the assets, among others, to arrive at the assets’ fair value.

To account for the fair value of oil palm trees for example, one would need to determine their market value.

“Is there an active market available, if not, you try to find approximates from similar recent market transactions. When you do not have approximates, you need judgement when you prepare the present value of expected cash flow of the asset,” Loh added.

This requires expertise and additional costs for the preparers of financial statements as independent external valuers are often engaged for this exercise.

Sime Darby Bhd, which owns more than 500,000ha of oil palm estates in Malaysia, Indonesia and Africa, has commenced an assessment of the implication of IAS 41 on financial statements. The valuation methodology was determined and enhanced in consultation with a professional firm of valuers.

As assumptions change with market conditions, the bottom lines of companies will also be affected.

“Results will be quite volatile because values go up an down due to the various variables. The cost method as currently used is much more predictable in that way,” Loh said.

Aside from the element of subjectivity and risk of volatility in companies’ bottom lines, Chan said the judgement calls made by the preparer may also lead to open disagreements with the auditor.

“Auditors are required to challenge and question the preparer and conduct a stress test. If the basis used is not reasonable then there is bound to be disagreement which may lead to qualified accounts,” he explained.

From a practical standpoint, TH Plantations Bhd CFO Mohamed Azman Shah Ishak said for a company with vast oil palm estates in different locations, with differing age profiles and soil conditions, arriving at the fair value may require pages of assumptions, which may only confuse users.

A Sime Darby spokesperson said that given its large planted area, the biggest challenge in implementing IAS 41 is gathering and managing source data relevant for the purpose of valuation of biological assets and the preparation of discounted cash flows to the lowest cash generating unit which is on a field-by-field basis. Source data refers to past historical financial and operational records, projected selling prices, field maps, soil classification, projected financial and operational performance, rainfall statistics, the spokesperson added.

“Furthermore in the event that an external professional valuer is required to determine the fair value of the biological assets periodically, this is likely to be an additional recurring cost,” she said.

Azman questioned whether knowledge of the market value of the biological assets of a company would serve the needs of a long-term investor.

“Because you’re not going to realise it, the company is a going concern which will continue to operate. If you have an intention to sell it, then I want to know the value but otherwise, I just want to know the value it can give me as a going concern not if it’s realised,” he said.

Financial practitioners added that dividends paid by companies are not based on their intrinsic value but on value realised year by year. When the bottom lines reflected in financial statements under fair valuation predominantly comprise unrealised profit, it should be noted that they may not necessarily have the cash flow to pay dividends.

Despite the concerns, Sime Darby said IAS 41 will introduce a new concept of recognising profit upfront in the plantation industry.

“Plantation companies are likely to show a windfall profit in the initial year of planting when biological assets are fair valued. However, the profit would be on a decreasing trend in subsequent years if operations remain static,” the Sime Darby spokesperson said.

Loh said that through education and adequate disclosures in the financial statements, stakeholders would be able to benefit from IAS 41.

“In a world where people are informed, the information will unlock a lot of value. In the cost method, values are generally lower. There’s talk about plantation companies being undervalued so showing fair value, especially in this market when values are high, may unlock some of these values. So, it’s not all bad for the plantation companies. Shareholders may benefit from it,” he added.


This article appeared in The Edge Financial Daily, December 5, 2011.



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MIDF Research maintains Buy on TH Plantations, TP RM2.51

KUALA LUMPUR (Nov 17): MIDF Research is maintaining its Buy call on TH PLANTATION []s Bhd at a higher revised price of RM2.51 from RM2.26.

It said on Thursday in line with the upwards earnings revision, it was revising our target price by 11% to RM2.51.

“The target price is derived from 9.5 times EPS12, which is 0.5-standard deviation below its three-year historical PER of 10.3 times,” it said.

“The higher targeted PER (we previously discount the valuation by one standard deviation) is to reflect TH Plant’s maturity and stable business operation,” it added.



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TH Plantations acquires two companies with 20,000ha of land

TH Plantations Bhd (Nov 14, RM2.13)
Maintain outperform with fair value of RM2.55: THP has entered into two separate conditional sales and purchase agreements with: (i) Sawit Green Plantation Sdn Bhd to acquire a 70% stake in Hydroflow Sdn Bhd for RM73.5 million. Hydroflow owns eight parcels of land with provisional leases in the Sedilu-Gedong district of Sarawak, with total land area of 5,602ha. Some 693ha (12.4%) of the land is planted, with 85% of planted land more than four years old. This acquisition is to be completed by 1Q12; and (ii) Indonesian citizens H Rajasa Abdurachman and Badai Sakti Daniel to acquire a 93% stake in PT Persada Kencana Prima (PKP), for 46,211.96 million rupiah (RM16.18 million). PKP has obtained a plantation business permit (Izin Usaha Perkebunan) to operate 14,180ha of plantation land in Seseyap Hilir, Tana Tidung District, East Kalimantan. This acquisition is to be completed by 2Q12.

THP will need to spend an additional RM495 million (RM102 million for Hydroflow and RM393 million for PKP) over five to six years to develop all the land, which will be funded by internal funds and borrowings.

The acquisition price of the Hydroflow land works out to about RM18,740 per ha for its effective 70% stake, which we believe is relatively inexpensive for semi-planted land in Sarawak, given that planted land in Sarawak is usually about RM30,000 to RM50,000 per ha, while unplanted land is about RM10,000 RM15,000 per ha.

PKP’s acquisition price of RM1,275 per ha is also on the low end of greenfield land transactions in Kalimantan, of between US$500 (RM1,565) and US$1,000 per ha. Upon completion of the acquisitions, THP’s total plantation landbank will rise by 50% to 59,153ha (from 39,371ha currently), thereby meeting its key performance indicator to reach a landbank of 50,000ha by 2012.


We are positive on this development, as we believe the pricing is reasonable. We are pleased to note that as the land in Sarawak is not native customary rights (NCR) land, THP should not face the issues other planters who have tried to expand their landbank in Sarawak have.

Forecasts are unchanged pending more details at THP’s briefing tomorrow. Risks include: (i) a reversal in crude oil price trends; (ii) weather abnormalities; (iii) change in emphasis on implementing global biofuel mandates and trans-fat policies; and (iv) a faster or slower than expected global economic recovery.

We make no change to our fair value of RM2.55, based on CY12 price-earnings ratio target of nine times. This does not include its attractive dividend yield of 7% to 7.5% per year. We maintain our “outperform” recommendation. — RHB Research, Nov 14


This article appeared in The Edge Financial Daily, November 15, 2011.



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