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Monday, March 26, 2018

Ta Ann Holdings - Minimal Impact From Log Fee Hike


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Following the hill timber premium hike in last July, the Sarawak Forest Department has also raised the fee for tracking the movement of planted forest timber by 300% to RM1.50/ cu m from RM0.50/ cu m effective this month. The Sarawak authority has also recently introduced a transportation fee of RM1/ cu m for hardwood timber harvested from natural forest. We think the impact of the fee hike is minimal to Ta Ann as we estimate the earnings impact could be in the range of -0.3% to -0.5% of the group earnings. We believe the recent correction in the company’s share price present a good buying opportunity as the company is currently trading at an unwarranted valuation of 10x PER. Maintain Outperform call with an unchanged TP of RM4.14.
  • Facing log fee hike. The Sarawak Forest Department has raised the fee for tracking the movement of planted forest timber by 300% to RM1.50/ cu m from RM0.50/cu m effective early this month. In addition, the department also introduced a transportation fee of RM1/cu m for hardwood timber harvested from natural forest from 1 March. It is understood that the new fee is to pay for tracking the movement of logs through the issuance of shipping pass or land transport pass.
  • The impact is negligible. Based on our channel checks, about 226,000 cu m or 60% of the group log production derived from the natural logs this year. This year, we expect to see a staggering jump of more than 200% in the planted forest timber production. In short, based on our estimates, the log fee hike together with the introduction of a transportation fee for hardwood timber harvested from natural forest, could lead to an earnings impact of -0.3% to -0.5%. Hence, we made no change to our earnings forecasts.
  • Continuous efforts in log plantation or reforestation projects. Thanks to the strong efforts in the planted forest or reforestation projects over the next few years, the group should see increasing planted forest timber production. As of FY16, the group planted trees’ harvestable area covers 16,413ha or 47% of total planted area of 35,247ha with an average age profile of at least 10 years old. The Sarawak-based timber company has embarked the second rotation planting following the harvesting of the first round planted acacia. It has also carried out kelampayan species planting along its oil palm estates.
Source: PublicInvest Research - 26 Mar 2018

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