Stock With Momentum: Ta Ann Holdings

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This article first appeared in The Edge Financial Daily, on October 12, 2015.

Ta Ann Holdings Bhd (-ve)

TA Ann (Fundamental: 1.8/3, Valuation: 1.4/3) was picked by our momentum algorithm for the first time last Friday. Despite a surge in trading volume, the stock closed unchanged at RM3.79.

Sarawak-based Ta Ann was established in the mid-1980s as a forest concession licensee. Today, the company is primarily engaged in the cultivation of oil palms, manufacture and sale of sawn timber, veneer and plywood, and trading of timber logs.

Ta Ann diversified into oil palm plantation in 2000. It has 39,527 hectares of planted oil palm, of which 76.8% are mature, and the balance are young and immature. The company also owns two palm oil mills with total processing capacity of 1.2 million tonnes of fresh fruit bunches (FFB) per year.

The oil palm segment became the largest contributor to sales in 2014, accounting for 42.6% of its RM1.0 billion sales. This is followed by the plywood segment (38.1%), logging (17.5%) and sawmilling (1.7%). The company produced 511,022 m3 of logs in 2014, up 25.6% from a year ago. Export, mainly to Japan and India, accounted for 53.2% of sales in 2014.

For 1H2015, sales rose 4.7% y-o-y to RM479.0 million on higher FFB and crude palm oil (CPO) sales volume as well as better average selling prices of timber and timber products. Meanwhile, net profit increased by a smaller margin of 3.6% to RM60.5 million, due mainly to weaker FFB and CPO average selling prices. Net gearing stood at 14.7% at end-June.

Ta Ann anticipates higher sales and profits from the oil palm segment in 3Q2015, which is when FFB production peaks. The timber segment, on the other hand, is expected to benefit from strong demand and favourable exchange rates.

The stock currently trades at a trailing 12-month P/E of 11.3 times and 1.25 times book.