TH Plantations in degearing mode

KUALA LUMPUR: TH Plantations Bhd, which plans to embark on a degearing exercise this year, hopes to get back on track with its target of 50% dividend payout, said its CEO Datuk Zainal Azwar Aminuddin.
Last year, the group was unable to declare dividends due to constrained cash flows and low profits.
"It is vital for us to use the cash flow available to maintain our operations. For FY16 we hope we will recover from that and upon executing some of the options mentioned earlier, then we will be in better state to declare dividends. We are still trying to meet the target of 50% (dividend payout)," he told reporters after its AGM yesterday.
For the financial year ended Dec 31, 2015 (FY15), the group's net profit rose 28.59% to RM62.13 million from RM48.32 million a year ago, while revenue fell 6.87% to RM455.30 million from RM488.92 million a year ago.
Zainal said the group, which was hit badly by the erratic weather pattern and the drastic drop in commodity prices last year, is exploring options to buffer its financial position in a more resilient manner.
"It can be the possible issuance of warrants, perpetual bonds or hiving off some assets or disposal of less productive assets. These are not confirmed yet but we will see how it will affect our financial position because the bottom line is, we would like to do a little bit of degearing exercise and pare down loans moving forward."
Zainal said with net gearing levels already at the maximum level of 0.71 times, the group will be very susceptible if crude palm oil (CPO) prices dip below RM2,300 a tonne. It aims to reduce its gearing to 0.5 times as a start and then lower it further.
"It's all about the buffer. We want a situation where if the price were to go down to RM1,800 a tonne, we can still have profit," he said, adding that it was caught off guard when CPO prices fell to RM2,100 a tonne last year.
Zainal said FY16 is still challenging with most plantation companies affected by the latent effect of El Nino in the first quarter of the year. However, he said, there are signs of the El Nino effect tapering off soon.
He said crops will only be coming up in the second half of the year and good recovery is expected from July onwards.
"Now we can see good palm oil prices going up for the past two months. From April-May, prices have been hovering between RM2,500 and RM2,600 a tonne and sometimes going to RM2,700. We hope that in the second half this year, prices will be sustained at above RM2,500. Only then we are able to survive or able to be above water," he added.
For FY16, the group is targeting fresh fruit bunch (FFB) yield of average 20.1 tonnes per ha and oil extraction rate (OER) of 20%. Last year, its FFB yield was at an average of 18.17 tonnes per hectare and the OER was at 19.65%.
The group is looking at downstream opportunities and is considering setting up a refinery in central Sarawak in two to three years' time.
The group's total land size is now at 105,000ha with a workforce of 7,000, 85% of whom are plantation workers. Zainal said it has no plans for job cuts.