Weak results by Ta Ann as timber sales fall, says CIMB Research

State property Forest Department director Sapuan Ahmad checking some of the 869 illegal logs seized from a sawmill near Kuching recently. He said such illegal logs not only cost the government substantial loss of revenue but that their unsystematic felling did much harm to the environment.

KUALA LUMPUR:  CIMB Equities Research has described timber-plantation company Ta Ann’s 1Q16 results below, at only 5% and 8% of its and consensus full-year forecasts.

It said on Friday the underperformance was due mainly to lower-than-expected timber sales volumes and selling prices as well as higher operating costs. The group declared an interim dividend of 5 sen, broadly in line with expectations.

“We cut FY16-18F EPS by 44%-51% to reflect the lower timber prices as well as higher operating costs. This leads us to cut our sum-of-part based target price to RM4. Maintain Hold as share price is supported by 5% dividend yield,” it  said.

“1Q16 core net profit fell 54% on-year to RM13mil due mainly to lower-than-expected contribution from its timber division. This is below expectation, as the 1Q net profit only made up 5% of our full-year forecast and 8% of consensus,” it said.

CIMB Research said Ta Ann’s timber profit before tax (PBT) fell 71% on-year and 59% on-quarter in 1Q16 as a result of lower timber sales and prices. 

The group reported a 13% on-year decline in plywood sales volumes and 33% drop in export logs due mainly to weaker demand from India. 1Q16 ASPs for both plywood and logs also fell by 16% and 6%, respectively, which contributed to the sharp drop in profit margin for the timber division from 23% in 1Q15 to 8% in 1Q16.

The only bright spot in 1Q16 was the better on-year palm oil earnings. Ta Ann posted RM8mil pretax profit for its plantation division in 1Q16. This is an improvement from the RM1mil profit achieved in 1Q15, thanks to higher selling prices and production. 

Its average CPO selling price rose 8% on-year to RM2,383 per tonne in 1Q16 and its FFB production rose 12% on-year on higher yield.

CIMB Research said Ta Ann expects the demand for logs to remain stable and log production to improve in 2Q on the back of improving weather conditions. The group indicated that although plywood demand in Japan is still slow, it is of the view that prices have hit the bottom and demand should pick up on the back of stronger yen and replenishment of stocks. It expects palm oil contribution to rise in view of higher demand and prices.

“We cut our FY16-18F EPS by 44-51%, mainly to account for the higher operating costs and lower selling prices as well as volumes for its timber products. This lowers our target price to RM4.00, still based on SOP.

“Despite the poor results, we maintain our Hold call as we are of the view that the 12% drop in Ta Ann’s share price over the past two days has priced in this bad news. On top of this, we expect the share price to be supported by the group’s dividend yield of 5%,”  it said.