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Tuesday, April 25, 2017

Plantation to offset decline in Ta Ann timber earnings

Tuesday, 25 April 2017 | MYT 9:30 AM

KUALA LUMPUR: Affin Hwang Capital Research expects Ta Ann Holdings Bhd’s 2017 timber earnings to be weaker yoy mainly due to lower log production.

However, the research house said this could be offset by higher plantation earnings on increased fresh fruit bunches (FFB) and crude palm oil (CPO) production.

“We believe timber earnings will be lower yoy, but this should be offset by increased plantation earnings. We estimate 2017 group net profit of RM137.5mil (2016 net profit: RM121.6mil),” Affin said.

The research house said in 2M17, Ta Ann’s log production was down 18.6% year-on-year to 51,854m3 .

“We expect production to continue to slow in 2017-19, partly due to a combination of Ta Ann’s timber concession licenses, the ruling in Sarawak that requires log diameters to be at least 45cm to be felled, more stringent environmental safeguards, as well as diminishing natural forest resources,” Affin said.

In 2M17, Ta Ann’s FFB production rose by 25.1% year-on-year to 98,721 MT and CPO production rose by 40.2% year-on-year to 29,750 MT.

“After accounting for lower log production estimates and a higher cost of production, partially offset by higher FFB and CPO production in 2017- 19E, we lower our core earnings per share forecasts by 3-11%m” Affin said.

“In tandem with our earnings revisions for 2017-19E, we lower our SOTP derived target price to RM4.79 from RM5.13.

“We value Ta Ann based on 8 times our 2017E EPS for its timber division (reduced from 10x due to the overall downtrend in timber sector), 15x for its plantation division and 1x BV for its forest plantation,” it said.

Affin added that with an upside potential of 26.4%, it has maintained its “buy” rating.

“We continue to like Ta Ann for its plantation earnings prospects given the increasing matured estates as well as expected higher FFB and CPO production,” it added.


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