Ta Ann Holdings Bhd
(Jan 8, RM3.65)
Maintain buy with a target price (TP) of RM4.55: A rise in mature plantation areas has increased Ta Ann Holdings’  fresh fruit bunch (FFB) production, while a strong demand for logs and improved log production have increased exports. Maintain “buy” rating with an unchanged sum-of-parts-derived TP of RM4.55, based on 2015 to 2016 earnings per share growth of 10% to 13% and a solid 5.3% 2015 dividend yield.

Ta Ann recently announced that total log production in the 11 months of 2014 (11M14) rose by 26.7% year-on-year (y-o-y) to 467,786 cu m. Strong demand for tropical logs, especially after Myanmar’s ban on log exports from April 2014, has increased Ta Ann’s total log exports and kept its average selling price (ASP) high at US$250 (RM891) to US$260 per cu m.

The Tasmanian mill is scheduled for a trial run next month. This should enable Ta Ann to manufacture and sell plywood directly to the Australian market. Demand for plywood was 3.9% y-o-y higher in the 9M14, and this helped to push up the blended ASP for Ta Ann’s plywood products to between US$524 and US$546 per cu m. We expect plywood demand to remain stable in 2015, underpinned by Japan’s construction needs and sustained demand for plywood products given specialist applications and sales to the Australian market. 

Our 2015 to 2016 forecasts conservatively factor in a ASP of US$525 per cu m.We expect the earnings contribution from Ta Ann’s plantation division to continue to grow, driven by the rising maturity of its plantation estates and increasing FFB and crude palm oil (CPO) production, as well as yield. Thus, we expect plantation earnings to grow by 10% to RM75 million in 2015.

We reaffirm our “buy” call on Ta Ann shares due to above-market earnings per share growth of 10% to 13% in 2015 to 2016 on higher log exports, improving plantation earnings given rising mature areas, and higher FFB and CPO production and what we view as an attractive 2015 dividend yield of 5.3%. — Affin Hwang Investment Bank Bhd, Jan 8.

This article first appeared in The Edge Financial Daily, on January 9, 2015.