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Thursday, March 23, 2017

Ta Ann’s plantation business to bear fruit

By AmInvestment Bank / The Edge Financial Daily | March 23, 2017 : 10:50 AM MYT
This article first appeared in The Edge Financial Daily, on March 23, 2017.

Ta Ann Holdings Bhd
(March 22, RM3.82)
Maintain hold with a fair value of RM3.60: We expect forecasted earnings to pick up in financial years ending Dec 31, 2017/2018 (FY17F/FY18F), rising 5%/10% respectively. Ta Ann Holdings Bhd’s plantation division will continue to deliver better earnings in FY17F/FY18F from its crude palm oil (CPO) and palm kernel (PK) businesses. CPO sales are set to climb by 5%/8% for FY17F/FY18F from 186,000 tonnes currently while average selling price (ASP) for CPO is expected to increase by 2%/4% in FY17F/FY18F from RM2,397 per tonne at present. Palm oil extraction rate remains unchanged at 19.3% for a prudent estimate.

Meanwhile, its PK sales volume is anticipated to rise by 5%/10% in FY17F/FY18F from 38,000 tonnes currently, while the ASP is expected to grow modestly at 5%/10% from RM2,445 per tonne.

On the flip side, the timber division is expected to remain sluggish in the coming years. The company anticipates the log volume to drop as it is merging the timber licensing and certification process which involves a reduction in annual coupe size (previous annual coupe size based on shorter harvesting cycle, while new coupes will be based on 25-year cycle to reflect longer tenure). Besides, the cutting diameter has been increased, with a minimum limit of 45cm to 50cm.

We forecasted the log volume to drop 5%/10% in FY17F/FY18F from 130,000 cubic metres (cu m) currently and the ASP to decline 5%/5% in FY17F/FY18F from US$238 (RM1,051.96) per cu m presently. For its plywood business, we expect a decline in volume of 5%/0% for FY17F/FY18F from 187,000 cu m now. Likewise, the ASP is expected to decline 5%/0% from US$447 per cu m currently as we remain conservative on plywood demand from Japan.

Earnings from the plantation division represent 60% of the company’s overall earnings, which are expected to increase by 5%/10% in FY17F/FY18F from RM74 million currently. In comparison, the timber division’s contribution will remain flat at RM46 million/RM43 million in FY17F/FY18F from RM48 million at present.

We continue to like Ta Ann because: i) its plantation business is expected to grow due to the rise of volume and prices; and ii) expansion of its plantation business through the acquisition of Agrogreen Ventures Sdn Bhd and progress on two non-customary right joint-venture projects which will add over 9,000ha to its existing plantation estate. However, the outlook of its timber business continues to be lacklustre. Hence we recommend a “hold” call at a fair value of RM3.60. — AmInvestment Bank, March 22

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