KUCHING: Ta Ann Holdings Bhd (Ta Ann) saw its net profit for the first quarter of financial year 2015 (1QFY15) declining six per cent year on year (y-o-y) to RM27 million due to weaker plantation earnings but boosted by its timber sector.
The group’s plantations pretax profit (PBT) slumped 92 per cent y-o-y to RM1 million as the average CPO selling price achieved was 12 per cent lower than the 1Q14 average price, said researchers at CIMB Investment Bank Bhd (CIMB Research).
“Timber PBT rose 20 per cent as a result of higher selling prices for plywood and export logs, which increased six and 16 per cent respectively.
“However, the earnings impact of better selling prices was partially offset by lower sales volumes for plywood and export logs, which declined by one per cent and 18 per cent, respectively.”
Timber contributed 98 per cent of Ta Ann’s pretax profit in 1Q15 as CIMB Research expects its timber earnings to remain strong in the next few quarters for two reasons.
“Firstly, the global tropical log supply is still struggling from the impact of the export ban by Myanmar last year,” it said. “The recent crackdown on illegal logging in Sarawak has further exacerbated the shortage. We believe the tropical log supply will remain tight, which bodes well for log prices.
“Secondly, Ta Ann is a big beneficiary of the weak ringgit as timber products are priced in US dollar.
“The weak ringgit, which has fallen by more than 10 per cent against the US dollar in the past 12 months, should boost the ringgit value of Ta Ann’s dollar-denominated timber revenue.”
Maybank Investment Bank Bhd (Maybank Research) maintained its earnings forecast for Ta Ann as it believed timber prices and cost of production are volatile and could normalise in the subsequent quarters.
“Due to the Malaysian Anti-Corruption Commission’s (MACC) investigation on illegal logging in Sarawak, part of Ta Ann’s bank accounts that relate to the sawmill and plywood mill has been frozen by MACC for three months.
“However, investigations have concluded positively and management believes its accounts would be uplifted in due course,” it added.
CIMB Research said Ta Ann’s plantations earnings could remain weak for the rest of the year if the low CPO price persists.
“The current spot price for CPO in Sarawak is only RM2,124 per tonne, below the average selling price of RM2,208 per tonne achieved by Ta Ann in 1Q.
“We are projecting an average CPO price of RM2,460 per tonne in 2015. Every RM100 price deviation from our projection will change our FY15 net profit forecast by eight per cent.”
Maybank Research maintained its buy call for Ta Ann with an unchanged target price of RM5.90.