Ta Ann the top pick in plantation sector
Posted on June 20, 2012, Wednesday
KUCHING: Ta Ann Holdings Bhd (Ta Ann) is well positioned to tap the vast one million hectares (ha) of agricultural land reserves in Sarawak.
The company had 30,911ha of planted land and approximately 12,000ha of plantable reserves in Sarawak as of December 2011.
According to Maybank Investment Bank Bhd (Maybank IB) in its research report, Ta Ann’s land bank had grown at a compounded annual growth rate (CAGR) of 28 per cent since 2005. Armed with its strong balance sheet, the company could still increase leverage by RM200 million before exceeding a net gearing ratio of 50 per cent.
Traditionally a major timber player, Ta Ann had in recent years diversified and fortified its business model with its upstream palm oil business now the largest profit contributor at 77 per cent of 2011 profit before tax.
“Being a relatively young planter, Ta Ann only began its accelerated planting in 2004. Thus, its current young average age profile of five years old with 32 per cent immature estate is approching the exponential growth stage of fresh fruit bunch production,” said the research house.
“Ta Ann is poised to deliver a robust 18 per cent three-year forward CAGR in FFB growth. Its plan to plant 3,000ha per annum will bolster its double-digit FFB growth phase which is expected to last till 2017,” it added.
Despite the timber division’s relatively smaller earnings contribution, its plywood division which was highly exposed to Japan could benefit from Japan’s reconstruction demand post-2011 earthquake and tsunami.
“Potential divestment of its loss-making Tasmanian operations would be positive to timber earnings too,” Maybank IB pointed out.
Going forward, the research firm expected Ta Ann’s net profit to grow at 15 per cent three-year CAGR, mainly driven by its plantation growth. Its long-term growth catalyst would emanate from its maturing forest plantation that would boost its logs supply significantly after 2015 and enhance its logs extraction yield.
Currently, 32,265ha of its total forest plantation land of 313,078ha was planted.
“Ta Ann’s current valuation of 10 times 2013 price earnings ratio and enterprise value to planted ha of RM38,436 is unjustified given its transformation from a cyclical timber play into a more defensive oil palm plantation player with quality earnings growth,” Maybank IB stated.
“Ta Ann is our top pick of the plantation sector for we believe this undervalued stock is due for a re-rating, buoyed by its improved earnings quality and strong growth.”
Given that, the research house pegged Ta Ann’s target price at RM9 per share.