KUCHING: Higher log exports and stable demand for plywood are expected to enhance the prospects of Ta Ann Holdings Bhd (Ta Ann) this year.
Besides, Ta Ann’s financial performance this year will also be supported by improving contribution from its plantation earnings attributed to rising matured plantation areas, higher fresh fruit bunch (FFB) and crude palm oil (CPO) production.
Affin Hwang Investment Bank Bhd (Affin Hwang Capital) in a report said a rise in matured plantation areas has increased Ta Ann’s FFB production while strong demand for logs and improved log production have increased its exports.
The research firm said the company recently told Bursa Malaysia that its total log production for 11 months 2014 rose by 26.7 per cent year-on-year (y-o-y) to 467,786 cubic metre.
It noted the improvement for Ta Ann’s log production was attributable to the change in the log harvesting method to zebra logging and better weather conditions that had helped to increase the supply of logs.
Affin Hwang Capital explained that the zebra logging method is deemed as an environmentally-friendly harvesting mode that reduces ground disturbances while improving harvesting efficiency, especially in steep
terrain.
Additionally, the research house believes strong demand for tropical logs, especially after Myanmar’s ban on log exports from April last year has increased Ta Ann’s total log exports and kept its average selling price high at US$250 to US$260 per cubic metre.
It observed demand for tropical logs has mainly been ordered by India – constituting about 69 per cent of Ta Ann’s total log exports.
Affin Hwang Capital said India began purchasing logs from other major logs producers after Myanmar banned log exports in April last year.
The research firm reasoned that the situation has helped to keep Ta Ann’s log average selling price high.
In the meantime, Ta Ann’s total log exports rose by 30.1 per cent y-o-y to 168,647 cubic metre in nine months 2014.
Affin Hwang Capital analyst Nadia Aquidah said, “We continue to believe that prospects for the timber division are highly dependent on market demand from main exports markets.
“India’s demand for tropical logs still looks healthy, in view of the country’s construction needs.
“We expect Ta Ann’s log revenue to grow by 11 per cent to RM189 million in 2015 on higher export volume and a strong US dollar against the ringgit.
“We (also) expect demand for Ta Ann’s plywood to continue (growing), supported by Japan’s ongoing reconstruction activities and its preparations as host of the 2020 Olympics, sustained demand for plywood products given specialist applications for Ta Ann’s products and stronger sales to the Australian market.
“(Thus), we expect (Ta Ann’s) plywood divisional revenue to grow by four per cent to RM385.5 million in 2015, mainly on a stronger US dollar against the ringgit,” Nadia said.
At the same time, Nadia believes Ta Ann’s palm oil earnings will continue to grow driven by rising matured plantation estates and increasing FFB as well as CPO production and yield.
“We expect Ta Ann’s matured plantation area to increase to 30,911 ha in 2014 and 35,345 ha in 2015 from 27,958 ha as at end of 2013.
“Thus, we are expecting (Ta Ann’s) plantation profit before tax to grow by about 10 per cent to about RM75 million in 2015.
“We (also) expect FFB production to continue to increase given Ta Ann’s young weighted average tree-age profile of approximately seven years, along with anticipated of yields rising to 19 to 20 per cent in 2014-2015 from 18 per cent in 2013.
“In 11 months of 2014, Ta Ann’s FFB production rose by 6.9 per cent y-o-y to 518,351 metric tonne (MT) and its CPO production rose by 65.8 per cent y-o-y to 141,276 MT,” Nadia observed.