KUCHING: Ta Ann Holdings Bhd (Ta Ann) reported a slow start to the financial year 2016 but analysts see promising prospects in the group, backed by its palm oil segment and possible recovery in its timber division.
Of note, Ta Ann recorded a net profit of circa RM14 million, which generally came below market an analysts’ expectations.
Nevertheless, analysts favour the company’s plantation earnings prospects as well as potentials in the timber division.
In a report, the research arm of AmInvestment Bank Bhd (AmInvestment Bank) said the group earnings were impacted by lower log and plywood volume and prices and traditionally, 1Q produces lower log and plywood volumes.
For Ta Ann’s plantations segment, it noted that 1Q is traditionally is also traditionally the weakest quarter for fresh fruit bunches (FFB) production and it is entering the peak crop season in 3Q16.
Nevertheless, it said, “We maintain our earnings forecasts for now, as it could still make up for the shortfalls to expectations, in view of the higher FFB production and crude palm oil (CPO) prices as well as higher log harvest in the months ahead.”
It added that it maintained its FFB production growth at 14 per cent and CPO price assumption at RM2,300 per tonne for FY16 forecast.
Meanwhile, the research arm of Affin Hwang Investment Bank Bhd (Affin Hwang Capital) pointed out that Ta Ann’s log prices have started to decline since late 2015 to about US$221 to US$236 per m3 from a high of US$289 per m3 in 3Q15.
“The high log prices and depreciation of the Indian rupee against the US dollar had pushed away Indian buyers, the largest log customers, to source for lower-cost logs in Papua New Guinea and the Solomon Islands.
“However, we believe that the decline in log prices would attract Indian buyers to Sarawak again,” it opined.
The research arm of Public Investment Bank Bhd (PublicInvest Research) also noted that plywood prices are likely to recover in 2Q given the low plywood inventory, stronger yen and better-than-expected to gross domestic product (GDP) data from Japan, which would give a boost for plywood orders.
“On the sales volume, log exports are expected to remain in the range of 160,000 to 170,000 cubic metres this year while plywood would also stand around 190,000 cubic metres,” it added.
On Ta Ann’s plantations sector, it noted that Ta Ann has allocated a lower capex of RM50 million for FY16 as majority of its plantation land are fully planted (only less than 1,000 hectares left for new planting).
Meanwhile, Kenanga Research said it anticipated stronger performance in Ta Ann’s plantation segment in 2Q16 as CPO prices have remained stable above RM2,500 metric tonne since mid-March, while FFB production should continue rising in line with cropping patterns.
Overall, it maintained a ‘market perform’ call on the stock and said it believed stabilising timber demand and better plantation outlook is offset by lower than expected timber volume.
PublicInvest Research maintained an ‘outperform’ rating on the stock. It said, “We think that the recent sharp fall in the share price performance has fully priced in the poor results for this year.
“Further downside risk is unlikely and will be capped by the current attractive dividend yield of 5.1 per cent. At current market cap, the timber concession business, which contributes at least 50 per cent earnings to the group, is significantly overlooked.”
Affin Hwang Capital maintained its ‘buy’ call and said it continue to like Ta Ann for the rising plantation earnings given the increasing matured plantation areas, FFB and CPO production, and its 5.1 per cent 2016 estimate dividend yield.
Aside from that, AmInvestment Bank upgraded its call of the stock to ‘buy;, given the oversold position, with a good dividend yield of 4.7 per cent, in addition to the capital gains upside.