We initiate coverage on Ta Ann Holdings (Ta Ann) with an Outperform call and SOP-derived target price of RM4.10.
Though the timber business is not doing exceptionally well at this
juncture, we believe Ta Ann is on the verge of becoming a mid-sized
plantation company given the sizeable landbank that it owns. Banking on
its continuous new planting efforts in recent years, we think Ta Ann is
going to reap the gains in the coming years judging by its strong FFB
production growth. In addition, we expect CPO prices to rebound to the
average of RM2,550/mt after being depressed at current levels for nearly
two years.
From timber to oil palm. Ta Ann was founded in 1985 by a group of Sarawak business people. The company started timber extraction from a timber concession area in Kapit and eventually went into downstream processing after the imposition of a 40% (now 50%) export quota by the state government in 1988. Today, timber is not the only core business for the company, having diversified into re-forestation and oil palm plantations as well. The company holds six timber concessions with a total area of 435,256ha. It also has 97,855ha for oil palm plantations and 313,078ha of forest plantations in Sarawak.
Forecasting double-digit earnings growth even with current unattractive palm oil prices and hiccups in timber segment. Though FY13 group earnings are expected to be weaker, we are more positive on the FY14 outlook, fuelled by improved earnings from its palm oil operations despite continuous losses in the plywood segment. As the company is in the process of restructuring its Australian veneer operation, we expect losses from this particular area to narrower in the future, starting 2H FY14.
Risk factors include rising log prices which is negative for plywood margins, fuel cost and labour cost. Abnormally lengthy rainy season and strengthening of ringgit currency against USD will also be disadvantageous for Ta Ann’s timber’s business. Other key threats to demand and Ta Ann’s plywood product prices include Japanese economic growth and trade policies in other wood-supplying countries.
Source: PublicInvest Research - 22 Oct 2013
From timber to oil palm. Ta Ann was founded in 1985 by a group of Sarawak business people. The company started timber extraction from a timber concession area in Kapit and eventually went into downstream processing after the imposition of a 40% (now 50%) export quota by the state government in 1988. Today, timber is not the only core business for the company, having diversified into re-forestation and oil palm plantations as well. The company holds six timber concessions with a total area of 435,256ha. It also has 97,855ha for oil palm plantations and 313,078ha of forest plantations in Sarawak.
Forecasting double-digit earnings growth even with current unattractive palm oil prices and hiccups in timber segment. Though FY13 group earnings are expected to be weaker, we are more positive on the FY14 outlook, fuelled by improved earnings from its palm oil operations despite continuous losses in the plywood segment. As the company is in the process of restructuring its Australian veneer operation, we expect losses from this particular area to narrower in the future, starting 2H FY14.
Risk factors include rising log prices which is negative for plywood margins, fuel cost and labour cost. Abnormally lengthy rainy season and strengthening of ringgit currency against USD will also be disadvantageous for Ta Ann’s timber’s business. Other key threats to demand and Ta Ann’s plywood product prices include Japanese economic growth and trade policies in other wood-supplying countries.
Source: PublicInvest Research - 22 Oct 2013
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