- We maintain HOLD for Ta Ann Holdings, with an unchanged fair value of RM3.40/share, based on a PE of 13x FY13F ESP of 26 sen.

- Ta Ann yesterday cemented its partnership with stateowned Pelita Holdings in the proposed development of oil palm estates on three parcels of land in Sarawak, via the subscription of shares in the relevant JV companies.

- Ta Ann now owns 55% of each of the three JV companies, while Pelita holds the balance, including 30% in trust for the native landowners.

- Ta Ann Pelita Matu Daro (eventual paid-up RM34.5mil) will develop titled land in Matu Daro, Mukah, measuring a gross area of 11,500ha, of which 6,900ha is plantable.

- Ta Ann Pelita Sebuyau Sdn Bhd (eventual paid-up RM15mil) will develop a gross area of 5,000ha of titled land, of which 3,000ha is plantable, at Sebuyau-Sebangan, Kota Samarahan Division.

- An existing subsidiary, Ta Ann Pelita Asajaya Sdn Bhd (eventual paid-up RM67.56mil), will develop a gross area of 22,520ha of titled land, of which 13,512ha is plantable, at Tambirat-Asajaya, Kota Samarahan.

- Ta Ann’s plantable area will increase by 45% to 75,312ha. It now still has 7,000ha-8,000ha left for planting over the next two years. The JVs will spare Ta Ann from coming up with upfront capital to acquire expensive landbank.

- According to its initial announcement last September, the JVs will pay cash incentive of RM100 to RM120/ha/month in the first seven years to Pelita (as the trustee). We believe this payment would only be made out based on the actual areas that are being planted each month, and not based on the overall gross or plantable area.

- If not and depending on CPO prices, it would likely be a heavy loss-making venture for the JVs in the initial years. Based on RM120/ha/month and the gross plantation areas, the payout works out to some RM56mil annually or RM34mil for plantable areas. As such, payments based on progressive plantings would be more sustainable.

- Additionally, the JVs will pay dividends from the 8th year onwards based on the operating profit that would not be less than the cash incentive. In addition, a one-time crop compensation (for existing crops, if any) of up to RM1,000/ha would be paid to the native landowners, where applicable.

- The new landbank will likely only be planted with oil palm by late-2014 or 2015. We keep our numbers for now.

Source: AmeSecurities