KUALA LUMPUR: Ta Ann Holdings Bhd’s high capital expenditure (capex) cycle is expected to end soon and that will provide spare cash to reward shareholders with even more generous dividends.

At an analysts’ briefing last Friday, Ta Ann managing director and chief executive officer Datuk Wong Kuo Hea revealed that the group would spend an estimated RM60 million on oil palm planting activities on the remaining 4,000ha of its land bank next year.

After the planting is completed, Ta Ann will be able to bump up its dividend payment further going forward, should there be no new investments, according to Wong, who is the controling shareholder with an equity interest of 27.76%.

Wong said at the briefing that he planned to declare a second interim dividend in the financial year ending Dec 31, 2014 (FY14) but this is subject to the board’s approval.

So far, the timber and palm oil firm has declared an interim dividend of 10 sen per share, or a payout ratio of 65%, following a big earnings jump in the six months ended June 30. The latest dividend is twice the five sen per share declared in FY12 and FY13.

For the cumulative six months ended June 30, Ta Ann’s net profit doubled to RM57.12 million from RM26.64 million, while revenue gained 30% to RM457.58 million from RM350.21 million a year ago. The improved profit was due to a significantly higher product sales volume, except for plywood products, and higher average selling prices of all its products.

As at June 30, the company’s cash balance was RM273.14 million while its total debt amounted to RM526.55 million.

According to Wong, Ta Ann wants to expand its plantation acreage by acquiring more land locally and abroad. Any land bank acquisition will raise its capex.

“I prefer that we acquire unplanted land and cultivate it ourselves. It is more steady. The price of unplanted land in Sarawak is currently about RM5,000 to RM10,000 per acre. A few days ago, we visited a planted land which was asking for RM68,000 per ha. That’s too expensive,” he said.

Ta Ann estimates a 10% year-on-year increase in its fresh fruit bunch production for the current financial year, given the increasing matured plantation area and the improving age profile of its trees. The average age of its trees is seven years. This will help to lift its plantation earnings.

On timber operations, Ta Ann is proposing to amalgamate four of its timber licences to form a new Forest Management Unit (FMU), which will have a tenure of 60 years. This comes after the Sarawak government’s decision to implement a new timber licence policy with a tenure of 60 years, instead of the current tenure which expires between five and 20 years.

According to Ta Ann, its log harvesting programme will be adjusted according to the new licence policy, which will enable it to achieve FMU certification — something that will help to open up a wider market for its exports.

The timber division remains as the biggest profit contributor, accounting for 68% or RM53.6 million of Ta Ann’s profit before tax in the first half ended June 30, while its oil palm plantation contributed to nearly 32% or RM24.86 million.

Ta Ann shares have been on a decline in the last three months, shedding nearly 16% since July. It closed at RM3.79 last Friday.

This article first appeared in The Edge Financial Daily, on November 10, 2014.