Thursday 28 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on May 15, 2019

Ta Ann Holdings Bhd
(May 14, RM2.29)
Maintain outperform with a higher target price (TP) of RM2.98:
Ta Ann Holdings Bhd is set to release its first quarter of financial year 2019 (1QFY19) results on May 28. We are expecting a commendable year-on-year (y-o-y) performance, bolstered by a strong increase in log supplies from natural and planted forests.

Its palm oil segment, however, may see a decline in crude palm oil (CPO) prices, having fallen about 16% y-o-y to RM2,008 per tonne.

We raised our earnings forecasts by 4% to 10% for FY19 to FY21, expecting more log supplies from natural forests. We expect the Raplex Forest Management Unit’s (FMU) certification to be completed by the first half of 2019 (1H19). We maintained our “outperform” call with a higher sum-of-parts-based TP of RM2.98.

Based on monthly statistics disclosed on Bursa Malaysia, Ta Ann saw a log production of 70,636 cubic metres (cu m) in 1QFY19, or +100% y-o-y and +29.8% quarter-on-quarter (q-o-q). The strong log production growth was mainly attributed to more log supplies from natural and plantation forests. We estimate the group will see a staggering production growth of 70% y-o-y for the full year.

Our new forecasts also include a six-month log contribution from the second FMU Raplex, expected to be certified by end-1H19. Raplex covers about 63,993ha compared with Ta Ann’s first FMU Kapit’s 149,756ha.

The certified licensed area will be entitled to a 40% export quota compared with a 20% export quota for the existing uncertified licensed area. Log production from plantation forests is also expected to double to 96,000 cu m this year as more planted areas mature.

In 1QFY19, log prices averaged at US$254 (RM1,059) per cu m (y-o-y: -27%; q-o-q: -12.4%), and plywood averaged at US$559 per cu m (y-o-y: +7.3%; q-o-q: -2.7%). We believe the favourable plywood prices were buoyed by improving sales of Programme for the Endorsement of Forest Certification plywood fetching better selling prices. We expect plywood to contribute about 66% of its timbre earnings this year.

A persistent weakness in CPO prices — 1QFY19’s RM2,008 versus 1QFY18’s RM2,383 per tonne — could pose a downside risk to palm oil earnings despite an expected encouraging growth of fresh fruit bunch (FFB) production at 15% to 20% after a decline last year. The management sees a lower CPO production cost of RM1,600 versus RM1,700 per tonne in FY18, led by a FFB production increase.

Ta Ann’s oil palm planted area totalled 47,838ha as of end-2018, with 92% under the mature area. The plantation segment remains young with an average age of 10 years old.

We expect to see a huge improvement in FFB yields this year versus FY18’s 17.26 per tonne per ha, given an encouraging targeted FFB production growth of 15% to 20%. The third palm oil mill, TBS Oil Mill with a capacity of 45 tonnes an hour, is set to be operational by end-1HFY19. — PublicInvest Research, May 14

      Print
      Text Size
      Share