KUCHING: Upside is expected for Ta Ann Holdings Bhd’s (Ta Ann) timber and plantation divisions which will lead to growth in 2019-2020E earnings, analysts project.
Affin Hwang Investment Bank Bhd (AffinHwang Capital) expected Ta Ann’s future earnings to grow, underpinned by higher contributions from both the group’s plantation and timber divisions.
“We expect log production as well as export log sales volume to be higher in 2019-2020E due to Ta Ann’s new Certificate for Forest Management for its subsidiary, Tanjong Manis Holdings Sdn Bhd, under the Malaysian Timber Certification Scheme (MTCS), which allows the company to increase its log export quota to 40 per cent (only for logs harvested under this FMU), coupled with more forest lands to be certified by 2019-2020.
“The global shortage for logs and firm demand for its timber products (both log and plywood) should also help to keep prices high,” the research firm said.
Additionally, AffinHwang Capital expected 2019-2020E earnings growth for Ta Ann’s palm-oil plantation division to be driven by rising crude palm oil (CPO) production (barring no extreme weather conditions) as well as better prices, though partially offset by higher production costs due to an increase in the minimum wage.
“The current low CPO price, in our opinion, is unlikely to be sustained in the first quarter of 2019 (1Q19), when we expect seasonal production declines and world palm-oil consumption will be in excess of production, thus reducing stocks.”
As such, the research firm believed that CPO prices could potentially improve in 2019E and onwards to RM2,400 per metric tonne (MT) to RM2,500 per MT, from an estimated average of RM2,200 per MT to RM2,250 per MT for 2018E.