KUCHING: Ta Ann Holdings Bhd (Ta Ann) is expected to see its earnings to pick up in the financial year 2017 (FY17) and FY18, driven by its plantation business.
The research team at AmInvestment Bank Bhd (AmInvestment Bank) believed that the group could see its earnings pick up by five and 10 per cent for FY17 and FY18.
It explained, “(Ta Ann’s) plantation division will continue to deliver better earnings in FY17F and FY18F from its CPO and palm kernel (PK) businesses. CPO sales are set to climb by five and eight per cent for FY17F and FY18F from 186,000 metric tonne (MT) currently while average selling price (ASP) for CPO is expected to increase by two and four per cent in FY17F and FY18F from RM2,397 MT at present.
“Palm oil extraction rate remains unchanged at 19.3 per cent for a prudent estimate.”
In addition, the research team pointed out that its PK sales volume is anticipated to rise by five and 10 per cent in FY17F and FY18F from 38,000 MT currently while the ASP is expected to grow modestly at five and 10 per cent from RM2,445.
It noted, earnings from plantation division represents 60 per cent of the company overall earnings which are expected to increase by five and 10 per cent in FY17F and FY18F from RM74 million currently.
However, for Ta Ann’s timber segment, AmInvestment Bank expected the timber division to remain sluggish in the coming years.
It believed Ta Ann’s timber division’s contribution would remain flat at RM46 million and RM43 million in FY17F and FY18F from RM48 million at present.
“The company anticipates the log volumes to drop as it is merging the timber licensing and certification process which involves a reduction in annual coupe size (previous annual coupe size based on shorter harvesting cycle, while new coupes will be based on 25-year cycle to reflect longer tenure).
“Besides, cutting diameter has been increased with minimum limit of 45 to 50cm. We forecast the log volume to drop five and 10 per cent in FY17F and FY18F from 130,000 cubic metres currently and the ASP to decline five and five per cent in FY17F and FY18F from US$238 per cubic metre presently.
“For plywood business, we expect the decline in volume of five to zero per cent for FY17F and FY18F from 187,000 cubic metres now.
“Likewise, the ASP is expected to decline five to zero per cent from US$447 per cubic metre currently as we remain conservative on plywood demand from Japan,” it explained.
Overall, AmInvestment Bank maintained a ‘hold’ call on the stock.
It said, “We continue to like Ta Ann because plantation business is expected to grow due to the rise of volume and prices, and expansion of its plantation business through the acquisition of Agrogreen Ventures and progress on two Non-Customary Right joint venture projects which will add more than 9,000 hectares to its existing plantation estate.
“However, the outlook of its timber business continues to be lacklustre.”