Ta Ann’s analyst briefing hosted by its CEO was informative, touching on  the  new  timber  licencing  policy  in  Sarawak,  its  strategy  to  address its  loss-making  venture  in  Tasmania, as well  as  its  plans  to expand  its palm oil landbank. We  make no changes to our forecasts and maintain our  SOP-based  TP  of  MYR3.80,  as  we  believe  lower  CPO  prices  will likely offset stronger timber earnings.   
 
Key highlights from Ta Ann’s analyst briefing hosted by its CEO, Dato Wong Kuo Hea include:  

i)  As  a  result of  the  Sarawak  government’s  new  timber  licencing policy, Ta Ann is proposing to amalgamate its four timber licences to form  a  new  Forest  Management  Unit  (FMU),  which  will  have  a tenure  of  60  years  (from  5-15  years  currently).  Timber  companies would then have to get their FMUs re-certified under the Malaysian Timber  Certification  Scheme  (MTCS)  and  certified  by  the  Forest Stewardship  Council  (FSC)  in  New  Zealand,  which  would  alleviate pressures  from  non-governmental  organisations  (NGOs).  Ta  Ann does  not  expect  any  changes  to  its  logging  quota  from  this  new ruling. We are positive, given the longer licence tenure and the more environmentally-friendly policies. 

ii)  Ta Ann’s converted 48,000 cu m/year plywood (from veneer) mill in Tasmania  is  nearing  completion  and  will  commence  operations  in early  2015.  As  a  condition  of  the  agreement  reached  between  Ta Ann and the Tasmanian government in 2013, Ta Ann is required to keep  its  operations  running  for  the  next  five  years.  With  the  new plywood  mill,  Ta  Ann  will  save  on  transport  costs  and  sell  its plywood domestically (as Australia currently imports 35,000 cu m of tropical plywood per month). We understand that margins are about 10-15% for this product. We are not imputing any contributions from this plant into our forecast yet, although we estimate this could add 8-12% to our forecasts, assuming a 100% take-up.  

iii)  Ta Ann will finish planting up all its plantable palm oil land by 2015 and is looking to expand its landbank, preferably in Sarawak.   

Maintain  NEUTRAL. While  we  are  positive  on  the  latest  developments and  continue  to  like  Ta Ann’s strong FFB production growth of 10-20% p.a.  over  the  next  few  years,  this  would  not  be  enough  to  offset  the impact  of  lower  CPO  prices,  given  its  sensitivity  to  CPO  price movements,  where  every  MYR100/tonne  could  impact  earnings  by 7-9%. Our SOP-based TP is maintained at MYR3.80.

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

Ta Ann is mainly involved in the manufacture and sale of plywood, trading of timber logs and cultivation of oil palms.

Recommendation Chart

Source: RHB