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Author: PublicInvest   |   Latest post: Mon, 23 Sep 2019, 9:36 AM

 

Ta Ann Holdings - Driven By One-Off Gain

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Ta Ann’s FY18 core profit of RM55m fell below our and consensus expectations, making up only 79% after stripping out one-off gain of RM27.2m from its purchase of a 30.4% equity interest in Sarawak Plantation Bhd that resulted in an increase in book value. Nevertheless, we retain our FY19-21F earnings forecasts as we expect improving earnings outlook following the recent recovery in CPO prices. No dividend was declared for the quarter. Maintain our Outperform call with an unchanged TP of RM2.83.

  • Dragged by weaker timber sales (QoQ: -13.5%, YoY: -18.3%). The weaker group sales of RM237.6m were mainly dragged by a decline in plantations (-34.3%) segment. Plantation revenue, which made up of 54.6% of the group sales, was badly hit by a drop in CPO selling prices, down 31.7% YoY to RM1,821/mt. Meanwhile, FFB production climbed 3.4% YoY to 197,975mt. Timber sales rose 11.7% YoY to RM104m, lifted by improved logs (+128.2% YoY) and plywood sales (+21.5%) following the certification of Kapit Forest Management Unit (FMU) in June 2018. Average export log price fell 15.3% YoY to USD286/cu m dragged by more log production of cheaper species while average plywood price increased by 15.9% YoY to USD574/cu m. Sales volume of export logs doubled to 17,250 cu m while plywood slipped 8.3% YoY to 30,199 cu m.
  • 4QFY18 core earnings (QoQ: -67.4%, YoY: -54.7%). The Group’s bottomline tumbled to RM10.5m, dragged by an RM1.5m loss in timber unit and a 38.7% drop in plantation earnings after stripping out one-off gain of RM27.2m arising from the purchase of Sarawak Plantation Bhd. Log contributed a small profit of RM1m while plywood suffered from a loss of RM2.5m due to FX translation provision of RM6m.
  • Management guidance. For FY18, operating cost for logging segment stood at USD120/cu m while plywood was at RM540/cu m. CPO operating cost was higher at RM1,700/mt due to an increase in fertilizer price as a result of higher crude oil price and weaker Ringgit as well as a decline in PK credit. The recent bushfire in Tasmania has affected one of its veneer mills operations. The mill is fully insured but not for the consequential losses and the southern mill could be out for months. Fortunately, the other veneer mill located in the north of Tasmania is not affected and management plans to ramp up the capacity to make up the loss of capacity for the veneer requirement in Sarawak. For now, the veneer stock supply is sufficient for the next couple of months without affecting the group operation. This year, management targets FFB production growth of 19% YoY, driven by its young age plantation profile of 10 years old. A new mill in Selangau would be opening soon, which would help raising its CPO production by 60% YoY. On the timber segment, log production is expected to surge 71% YoY on the back of second certified FMU by June and more log supplies from its own plantation forest. Hence, we see a strong turnaround in the plywood segment while plantation should also improve, driven by a double-digit growth in FFB production.

Source: PublicInvest Research - 1 Mar 2019

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