Ta Ann to see better year ahead from strong US dollar

KUCHING: Ta Ann Holdings Bhd’s (Ta Ann) earnings is set to improve in 2017 due to higher timber and plantation profits, driven by an expected strong US dollar, the research arm of CIMB Investment Bank Bhd ( CIMB Research) observed.

In its strategy report, the research team commented, “The timber division should benefit from higher timber product prices due to the weak ringgit. Timber products are priced in US dollar.

“The palm oil division will benefit from higher fresh fruit bunches (FFB) output as yields recover from the El Nino effect.”

On the performance of Ta Ann’s main divisions (timber and plantation), it noted that Ta Ann’s timber profit before tax ( PBT) fell 56 to 54 per cent year- on-year (y- o-y) in the third quarter of 2016/first nine months of 2016 (3Q16/9M16_ as a result of lower log (down 11 per cent y- o-y) and plywood selling prices (down 14 per cent y- o-y).

“Also, it reported a four per cent y- o-y decline in export log sales volumes in 3Q16. On a quarter-onquarter (q- o- q) basis, 3Q timber earnings improved 20 per cent, mainly on 14 and 10 per cent gains in sales volumes of export logs and plywood, respectively,” it said.

CIMB Research also pointed out that the average selling price (ASP) for log rose 16 per cent q- o-q to US$ 256 per cu3 due to the cut in export quota.

However, it added, ASP for plywood fell two per cent q- o- q due to weak demand from Japan.

As for its plantation business, the research team highlighted that Ta Ann’s plantation overtook timber as largest contributor.

“The oil palm division continued to contribute strongly to group earnings in 3Q16 and 9M16. This division posted a 49 and 65 per cent y- o-y jump in pretax profit in 3Q16/9M16 due to a combination of higher selling prices and production.

“Its average crude palm oil (CPO) selling price rose 16 per cent y- o-y to RM2,412 per tonne and its FFB production rose seven per cent y- o-y in 3Q16. This division was Ta Ann’s largest earnings contributor, making up 58 per cent of its 9M16 pretax profit,” it explained.

Meanwhile, on Ta Ann’s plans to buy 100 per cent Agrogreen Ventures Sdn Bhd ( AVSB) for RM211 million to expand its Sarawak plantation land bank, CIMB Research noted that the enterprise value per hectare ( EV/ ha) pricing is higher than other recent estates transactions in Sarawak but this is partially offset by the group’s plans to enhance asset value via the building of a mill to process FFB from third parties.

It added, AVSB’s main asset is its 5,280ha mineral soi l landbank in Stungkor Sarawak, of which over 5,090ha has been planted with oil palms aged one to five years.

Overal l, CIMB Research maintained its ‘add’ rating given its attractive valuations against peers and stronger growth prospects from improving yields at its young oil palm estates (40 per cent of estates below six years old) in the coming years.