Ta Ann earnings support by peak crop season, higher prices

By ANIS HAZIM 

TA ANN Holdings Bhd’s plantation business is expected to provide a stable base for its earnings with the plantation operations set to benefit from the upcoming peak crop season and its spot selling strategy. 

RHB Investment Bank Bhd stated that the Sarawak based group’s valuation remains attractive with its high dividend yield. 

“It’s log production volume for the first half of 2021 (1H21) was 125,000 cu m which is 35% of Ta Ann’s full-year target of 350,000 cu m (+47% year-on-year [YoY]). 

“It hopes to be able to hit its target by harvesting 100,000 cu m of plantation logs in 2H21,” RHB analyst Hoe Lee Leng wrote in a report yesterday. 

However, with the monsoon season in the 2H, the analyst believes the target could be difficult to achieve. 

Ta Ann would need to harvest around 38,000 cu m of logs per month in the 2H, above its year-to-date (YTD) July average of 21,300 cu m. RHB forecasts log output at a more conservative 0.9% for 2021. 

“We raise our financial year 2021 (FY21) log average selling price (ASP) by US$5 

(RM20.75)/cu m to reflect log prices in the third quarter (3Q) that have continued to remain stable at US$260-US$265/cu m,” stated Hoe. 

She stated that the costs also remain flat at US$130/cu m. 

Ta Ann’s plywood production volume of 42,656 cu m (-7.7% YoY) for 1H21 and its full-year target of 85,700 cu m (+0.4% YoY) was also in line with RHB’s projections. 

According to Hoe, ASP has continued to rise to US$550-US$610/cu m in the 3Q due to the run-up in domestic plywood prices in Japan. 

“Plywood sales volume based on orders received is expected to be around 25,000 cu m in the 3Q. Regardless, YTD ASP is still below our plywood price assumption for FY21, therefore, we have lowered it slightly by 5.2%,” Hoe added. 

The analyst believes the plywood division will turn around more firmly in 2H21, given the average cost of US$490-US$500/cu m. 

Ta Ann’s FY21 fresh fruit bunch (FFB) production target stays at 720,000 tonnes (flattish YoY), given the upcoming peak season in September and October. 

“Although FFB production for August has improved to 70,600 tonnes (+34% month-on-month), it’s YTD-August output is still down 11% YoY, likely due to its 30% labour shortage,” Hoe added. 

RHB Investment, thus, maintains a more conservative -3% YoY projection for FY21 FFB growth. 

Furthermore, Ta Ann’s fertiliser application may only complete about 60% by year-end. 

“Given the lower fertiliser application, we lower our unit costs assumptions slightly. 

“Regardless of lower output, we believe earnings from the oil palm division will continue to be strong, given Ta Ann benefitting fully from the current high crude palm oil spot prices,” Hoe said. 

RHB Investment maintains a ‘Buy’ call on Ta Ann with a new target price of RM3.25 and 7% yield based on an unchanged ten times FY22F price-to-earnings. 

The investment bank raised Ta Ann’s FY21-FY23 earnings by 5%-8% and stated that Ta Ann’s valuation remains cheap relative to peers (trading at 9.3 times FY22, lower end of its peers of 8-13 times). It also offers a high dividend yield of 6.7%.