Ta Ann sees better performance from timber segment for 1HFY13

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HIGHER SALES VOLUME: According to the company, the depreciation of the yen and shortage of logs resulted in 38 per cent higher plywood sales volume and two per cent hike in ringgit-average selling prices.

KUCHING: Sarawakian player Ta Ann Holdings Bhd (Ta Ann) saw higher contributions from its timber sector for the first half of financial year 2013 (1HFY13) as its palm oil segment continued to see sluggish growth.

In a statement to Bursa Malaysia on Tuesday, it is estimated that profit from Ta Ann’s timber business surged more than 100 per cent to RM31.4 million in the period.

According to the company, the depreciation of the yen and shortage of logs resulted in 38 per cent higher plywood sales volume and two per cent hike in ringgit-average selling prices.

However, this could not make up for the sluggish earnings seen in its palm oil segment, dropping to RM6.9 million despite higher fresh fruit bunch and crude palm oil (CPO) production in 2Q13.

MIDF Amanah Investment Bank Bhd (MIDF Research) analyst Nur Nadia Kamil in a note on the group yesterday attributed this mainly to lower average selling prices for CPO and palm kernel oil (PKO).

The analyst noted that compensation from Australian Government has helped to support Ta Ann’s earnings.

Recall that on June 2013, Ta Ann Tasmania Pty Ltd agreed to surrender 108,000 cubic metres per annum of its native forest veneer peeler billet supply entitlements under the wood supply agreement with the Australian Government.

With that in consideration, the Australian government has agreed to make a compensation payment of A$28.6 million to be disbursed in two tranches.

The first tranche compensation of A$20.3 million received increased Ta Ann’s earnings in 2QFY13.

“Even after including the compensation from the Australian government, Ta Ann registered 1H13 earnings of only RM28.2 million, which made up 36.2 per cent of our full year earnings forecast. Excluding the compensation, Ta Ann registered an operating loss of RM9.6 million in 1HFY13.”

Looking at expectations for the second half of the year, Ta Ann is pegging its timber sector to remain the leading revenue contributor, while logging and oil palm divisions are expected to be the main profit contributors.

“Continuing orders for logs from India, the main market for Sarawak logs and the general shortage of logs in the market will sustain log demand,” the group outlined in their Bursa note.

“The victory of the LDP party in the July Japanese upper house election will empower the new Japanese Government to push ahead with economic reforms that are expected to generate higher domestic demand.

“Japanese plywood market is expected to benefit from the improved housing starts and set on a recovery mode.”

Meanwhile, the group’s Tasmanian subsidiary is undertaking an exercise to restructure its operation on reduced wood supply including establishing a plywood line in one of the two veneer mills to produce plywood products for the local Australian market which has a growing demand for its products.

All in all, MIDF Research maintained a neutral stance for the group, bearing in mind that For the past five years, palm oil business had contributed more than 65 per cent to Ta Ann’s earnings.

“Hence, in view of prevailing low CPO price, we maintain our recommendation on Ta Ann with target price RM3.50 per share.”