Maybank IB: Higher cess is negative on Ta Ann’s earnings

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

KUALA LUMPUR: The proposal to increase the cess payment for Sarawak’s hill timber to RM50 per cubic metre (cu m) from 80 sen is negative on Ta Ann Holdings Bhd’s earnings, according to Maybank Investment Bank Research. 

“We keep our earnings forecasts for Ta Ann for now pending further clarification with management. 

“But there is a 4-6% downside risk to our FY17-19 earnings per share forecasts if the revised cess is implemented. Our current target price of RM4.25 pegs the stock on unchanged 15 times 2017 PER, its 5-year mean,” Maybank said. 

Sarawak will increase the cess payment for hill timber from 80 sen to RM50 per cu m starting  July 1, 2017. The present rate has been unchanged for over three decades.

The Sarawak government is looking at RM200-300mil per annum collection under the revised rate, compared to about RM15mil under the current rate. 

“The higher cess payment on hill logs will raise Ta Ann’s cost as we understand approximately 40-50% of its log production comes from hill logs,” Maybank said. 

In 2016, Ta Ann extracted 446,846 cu m of logs including hill logs.

“For 2017, given the lower log production quota set by the Sarawak government, the volume extracted by Ta Ann should be at least 10% lower year-on-year. 

“Based on our preliminary estimates, this development will result on additional cess payment of about RM8mil per annum,” Maybank said.