Lower timber earnings seen for Ta Ann

Ta Ann and Jaya Tiasa to gain from weakening ringgit after Brexit.

KUALA LUMPUR: Ta Ann’s 2Q16 earnings from the timber division will likely be lower on-year due to weaker timber product prices, says Affin Hwang Capital Research.

However, it said on Wednesday the impact from timber should be offset by the plantation division due to the higher crude palm oil (CPO) prices as well as increase in fresh fruit bunches (FFB) CPO production. 

“We maintain our Buy rating on Ta Ann with an unchanged TP of RM4.42,” it said. 

Affin Hwang Capital Research estimates Ta Ann’s 2Q16 net profit would likely be at RM30mil to RM35mil (2Q15 net profit at RM33mil). 

It said the Indian buyers are still cautious on their log purchases as they try to source lower-cost logs due to the depreciation of the rupee against the US$. 

Similarly, Japan’s demand for plywood remains soft and the research house believes that there will not be any rush orders for plywood due to the change in plans to increase the consumption tax hike to 2019. 

“We maintain our average log and plywood price assumptions for Ta Ann at US$225 to US$230 per cubic metre and US$470 to US$480 respectively for 2016-18E,” it said. 

For 2Q16, Ta Ann’s FFB and CPO production increased by 4.2% and 5.8% on-year respectively to 157,824 tonnes and 44,097 tonnes. 

The research house estimates Ta Ann’s CPO prices in 2Q16 to average at about RM2,360 a tonne, up 12% from RM2,116 in 2Q15. 

“No changes were made to our earnings forecast. We value Ta Ann based on 10 times 2016E EPS for its timber division, 15 times for its plantation division and one time for book value for its forest plantation. 

“We continue to like Ta Ann for its rising plantation earnings given the increasing matured plantation areas, FFB and CPO production, coupled with its attractive dividend yields of 4.7% in 2016E,” it said.