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Ta Ann Holdings Bhd 
(July 15, RM3.65)
Maintain buy with a lower target price (TP) of RM4.81:
Due to diminishing natural forest resources and more stringent environmental safeguards, we cut our log production assumptions for the financial year ending Dec 31, 2015 (estimated) (FY15E) to FY17E. We also trim our plywood average selling price (ASP) assumption on soft demand in its main market, Japan. We lower our sum-of-parts (SOP)-based TP to RM4.81, which still offers a 27% upside potential. We reiterate our “buy” on Ta Ann for its earnings per share (EPS) growth of 10% to 11% and yields of 5.3% for FY16E and FY17E.

Ta Ann’s total log production for the first five months of FY15 (5MFY15) declined 22.4% year-on-year (y-o-y) to 156,946m³. The shortage of log supply, coupled with the strong demand for logs, have helped to keep log ASPs firm at US$250 per m³ (RM950 per m³) to US$265 per m³. Conversely, plywood ASPs have fallen to between US$500 per m³ and US$520 per m³, which we attribute to soft demand as its main plywood buyer, Japan, remains cautious about plywood purchases, partly due to the weakening of its currency against the US dollar and lacklustre housing starts.

We expect Ta Ann’s matured plantation area to increase to 35,345ha in 2015 and 37,267ha in 2016, from 30,355ha as at end-2014. For 5MFY15, Ta Ann’s fresh fruit bunch (FFB) production rose 5.7% y-o-y to 208,565 tonnes, and its crude palm oil (CPO) production rose 27.3% y-o-y to 55,496 tonnes.

As at March 2015, Ta Ann had planted about 39,921ha of its total plantable area of 42,914ha, and the group’s plantation is expected to be fully planted by end-2015. Going forward, Ta Ann is continuously looking for areas in Sarawak to increase its palm oil estates.

We are fine-tuning down our FY15E to FY17E EPS for Ta Ann by 2% to 5%, after imputing a 5% to 8% cut in our log production assumption and a lower plywood ASP by 1% to 3%. 

We reaffirm our “buy” rating on Ta Ann, with a slightly lower SOP-derived 12-month TP of RM4.81 (from RM4.92). We continue to like Ta Ann for its EPS growth of 10% to 11% for FY16E and FY17E, on the back of firm log ASPs, coupled with improving plantation earnings given rising matured areas, increasing FFB and CPO production, and a 5.3% FY16E dividend yield. — Affin Hwang Capital, July 15

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This article first appeared in The Edge Financial Daily, on July 16, 2015.

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