Ta Ann expected to see stronger 4QFY19 results

Ta Ann Holdings Bhd (Feb 12, RM3.19) Reiterate outperform with an unchanged target price (TP) of RM4.83: Despite seeing a lower-than-expected fresh fruit bunch (FFB) production for the fourth quarter of financial year 2019 (4QFY19) due to a cut in fertiliser application during the poor crude palm oil (CPO) price performance, we think Ta Ann Holdings Bhd is set to see a strong set of results for the final quarter of 2019, which is scheduled to be released on Feb 28, 2020. The favourable results are likely to be driven by stronger earnings contribution from both the timber and plantation segments. We think the current valuations are unwarranted given that it is trading at a forward price-earnings ratio (PER) of only 10 times, which is a steep discount compared to the industry PER of 32 times. Ta Ann remains one of our top picks for the plantation sector. We reiterate our “outperform” call with an unchanged TP of RM4.83.

The port congestion issue in Japan, which resulted in a backlog of two months for its plywood exports, has been resolved. Timber prices have recovered since last month following three straight months of declines. Meanwhile, the management has received approval-in-principle for the third forest management unit, Pasin, which has a total logging area of 132,194ha. The certified area, which will bring up the export quota from 20% to 40%, will potentially increase its log exports to 115,000 cu m this year, an increase of 13% year-on-year (y-o-y).

Its 4QFY19 FFB production stands at 181,356 tonnes (-6.7% y-o-y), bringing the full-year FFB production to 747,797 tonnes (+2.9% y-o-y), which is below our earlier projection of 815,000 tonnes. The decline in FFB production since September 2019 was likely due to a cut in fertiliser application in the first eight months of 2019 as CPO prices traded at a depressed level. Meanwhile, log production for 4QFY19 totalled 69,010 cu m (+27.5% y-o-y), bringing the full-year log production to 290,033 cu m (+40.6% y-o-y).

Backed by the favourable amount of rainfall over the last two months as well as its young age profile, the management has targeted FFB production growth of 17% to 855,000 tonnes for FY20. Based on our analysis, for every RM100 per tonne change in CPO price, our earnings forecasts will increase by as much as 27%-30%. In short, we expect earnings growth will be driven by: i) stronger CPO prices; ii) improved FFB production; and iii) projected staggering earnings contribution from its 30.4%-owned Sarawak Plantation. — PublicInvest Research, Feb 12

Source: TheEdgeMarkets