Friday 29 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on November 27, 2018

Ta Ann Holdings Bhd
(Nov 26, RM2.05)
Upgrade to outperform (OP) with an unchanged target price (TP) of RM2.35:
Ta Ann Holdings Bhd’s cumulative nine months ended Sept 30, 2018 (9MFY18) core net profit (CNP) of RM52 million is at 76% of consensus expectation (from RM69 million) and 61% of our forecast of RM84 million.

 

We believed the results are above street’s expectations but in line with our expectations of the group maintaining its improved third quarter ended Sept 30, 2018 (3QFY18) performance on the back of increased fresh fruit bunch (FFB) and crude palm oil (CPO) sales volumes, while also buoyed by an appreciating average selling price (ASP) and better volume of export logs and plywood. FFB production at 532,000 tonnes made up 69% of our full-year assumption of 774,000 tonnes.

A second interim dividend of five sen was announced, bringing year-to-date dividend per share to 10 sen, beating our full-year estimate of 5.5 sen. Year-on-year, 9MFY18 CNP dropped (-47%) as plantation profit before tax (PBT) plunged (-55%), on lower ASP of CPO (-19%) at RM2,235 per tonne and FFB (-21%) that led to an erosion of margins.

The timber division returned to the black with PBT of RM5.4 million, lifted by the surge in ASP of exported logs (+26%) to US$345 (RM1,446)/m3 and plywood (+23%) to US$547/m3, offsetting a sharp decline in sales volume as a result of government export quota limits and tightened logging standards (logs: -76% to 25,800 tonnes; plywood: -19% to 89,900 tonnes).

Quarter-on-quarter, 3QFY18 CNP saw a twofold jump (+111%) to RM31.7 million largely on improved PBT contribution from the plantation (+100%) and timber division (+222%). This was due to the higher volume of logs exported (+57%) and plywood (+12%), with increased sales volume of FFB (+38%) and CPO (+27%).

We continue to expect a stronger plantation contribution in the second half of financial year 2018 (2HFY18), driven by higher production on better FFB and CPO sales volumes despite a softer CPO price outlook which remains a challenge. We envisaged the timber division to improve profit-wise, spearheaded by appreciating timber prices and better sales volume as a result of increasing log exports proportion.

Ta Ann has completed the first phase of its ongoing timber certification programme, whereby 40% of the 149,756ha of certified concession areas are allowed for exports. Additionally, two more forest management units certification over a total forest land of 196,187 ha will be completed by 2019. We’re suggesting an upgrade to OP with an unchanged TP of RM2.35 following a recent price weakness, based on an unchanged forward price-earnings (PE) of 12.3 times as we rolled forward our valuation base to FY19 estimated earnings per share of 19.3 sen.

Our TP of RM2.35 implies a forward PE of 12.3 times, in line with the three-year average versus other planters, mostly pegged at -0.5 to -2.0 standard deviation. We believed this is fair, as we expect a better plantation and timber performance entering into the peak crop season in 2HFY18. We like Ta Ann for its relatively better earnings stability compared with other Sarawak timber players, with a further timber improvement expected. — Kenanga Research, Nov 26

      Print
      Text Size
      Share