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This article first appeared in The Edge Financial Daily on March 3, 2020

Ta Ann Holdings Bhd
(March 2, RM2.86)
Maintain outperform with a lower target price of RM4.29:
The increase in group sales to RM281.7 million was mainly led by stronger plantation sales, which were partly offset by weaker timber sales. Plantation sales jumped 61.3% year-on-tear (y-o-y) to RM210.6 million, mainly bolstered by higher crude palm oil (CPO) prices.

The average CPO selling price for the fourth quarter of financial year ended Dec 31, 2019 (4QFY19) improved from RM1,821 per tonne to RM2,362 per tonne while 4QFY19 fresh fruit bunch (FFB) production softened by 10.5% y-o-y to 177,097 tonnes. (FY19 FFB production made up 94% of our full-year expectations). On the other hand, timber sales softened by 34.3% y-o-y to RM71.1 million, hit by lower sales from both logs (-19% y-o-y) and plywood (-36% y-o-y) products.

Meanwhile, 4QFY19 average log export price tumbled 36.7% y-o-y to US$181 (RM760)/cu m (FY19: US$220/cu m) while 4QFY19 plywood price fell 15.1% y-o-y to US$487/cu m (FY19: US$530/cu m) due to the sales of cheaper log species. Log export sales volume increased by 29.5% y-o-y to 22,352 cu m (FY19: 94,495 cu m) while plywood export sales volume dropped 23.1% y-o-y to 23,230 cu m (81,800 cu m).

The steep decline in the group’s bottom line was attributed to timber losses and weaker plantation earnings. Timber segment posted a net loss of RM12.9 million, dragged by losses in plywood due to slower sales volume as a result of the prolonged port congestion issue in Japan. Logs only delivered small earnings of RM2 million due to a steep decline in margins. Plantation earnings dropped 39.1% y-o-y to RM28.3 million, weighed by higher cost of production (+28% y-o-y). In addition, administrative expenses doubled to RM15.9 million. Meanwhile, earnings contribution from its 30.4%-owned Sarawak Plantation Bhd stood at RM4 million.

The port congestion issue in Japan was due to full unloading bottleneck though situation has improved significantly. The surprise to us was that it is also facing loading issue at Bintulu port. On a more positive note, the group is expecting to achieve certification for additional 132,194ha of third forest management unit, Pasin. The certified area, which will bring up the export quota from 20% to 40%, will potentially increase its log exports to 115,000 cu m this year, an increase of 13% y-o-y. — PublicInvest Research, March 2

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