This article first appeared in The Edge Financial Daily on July 10, 2018
Ta Ann Holdings Bhd
(July 9, RM2.68)
Maintain sell with an unchanged target price (TP) of RM2.30: Ta Ann Holdings Bhd (Ta Ann) has announced that its Kapit Forest Management Unit (FMU) has been awarded the Certificate for Forest Management (Natural Forest) under the Malaysian Timber Certification Scheme (MTCS). The certification is valid for three years and the area covered is 149,756 hectares (ha) (or 40% of Ta Ann total concession area). This is the first FMU for Ta Ann to attain sustainable forest management certification under MTCS.
Ta Ann also mentioned that the Forest Management Plans for another two FMUs have been approved by Forest Department Sarawak (FDS). We gather that Raplex FMU is expected to be certified by 2019 whereas Pasin FMU is targeted to be certified by 2020.
We are neutral on the news. We believe that Ta Ann should be able to increase its production of certified plywood products following the certification. However, earnings impact is likely to be minimal in the near term as plywood products’ margin tends to be small.
We maintain our core earnings estimate of RM64.6 million for financial year ended 2018 (FY18). For financial year ended FY19, our core earnings estimate is unchanged at RM81.8 million. We maintain a “sell” with a target price of RM2.30. Our target price is based on 12.5 times forward price-earnings (Fwd PE) on FY19 forecast earnings reflecting -0.5 standard deviation (SD) valuation. We are maintaining a sell call due to weak earnings prospect for both plantation and timber segment in the near term. — MIDF Research, July 9