Ta Ann upbeat on future prospects of logging business

  • Business
  • Monday, 03 Sep 2018

Adding value: A file picture showing Ta Ann’s timber operation. The firm says the certification of a concession area adds value to its plywood products and that higher premium can be achieved on its product pricing.

KUCHING: TA ANN HOLDINGS BHD is upbeat about the future prospects of its logging business following the recent certification of one of its timber concession areas under the Malaysian Timber Certification Scheme (MTCS).

The MTCS is endorsed by the Programme for the endorsement of Forest Certification (PEFC)

On June 11, Ta Ann’s subsidiary Tanjong Manis Holdings Sdn Bhd obtained the certifcation from SIRIM QAS International Sdn Bhd for an area covering 149,756ha under the Kapit Forest Management Unit (FMU).

The certification constitutes 40% of Ta Ann group’s licensed concession area totalling 337,996ha.

The company has obtained approval from the Sarawak Forest Department for its forest management plans for Raplex and Pasin FMUs.

Together with Kapit FMU, the three FMUs were consolidated following the restructuring of the group’s timber licences in the Song-Kapit region in central Sarawak.

Ta Ann expects the Raplex FMU to be certified next year and Pasin FMU in 2020.

“This certification will ensure sustainability of timber logs production from the certified area to make available resources for the production of certified plywood products that meet the market demand.

“With the certification,it adds value to our plywood products whereby higher premium can be achieved on our product pricing, therefore generating tremendous impact in the plywood profitability for timber division,” said Ta Ann when commenting on the group’s prospect going forward when releasing its second quarter to June 30, 2018 financial results.

The earnings of Ta Ann and other Sibu-based’s major timber groups like Jaya Tiasa Holdings Bhd and WTK HOLDINGS BHD, have been negatively impacted by a drastic drop in log production in recent years.

This has resulted in lower logs export volume and affected the supply of quality raw materials to their processing mills,like plywood.

In the first half of 2018 (1H-2018), Ta Ann said the sales volume of its export logs fell by 61% while plywood products by 24% as compared to 1H 2017. As a result, the group’s revenue from timber products segment plunged to RM173.9mil from RM220.1mil and it sank into the red, with a pre-tax loss of about RM4.2mil, a reversal from profit of RM16.5mil during the same period.

Ta Ann group, whose other core business is oil palm, recorded a revenue of RM449.7mil and a net profit of RM21.4mil in 1H-2018, down from RM571.9mil and RM75.6mil respectively in 1H-2018.

Meanwhile, Jaya Tiasa has also reported a loss in its timber business, which is losing its shine. For the financial year ended June 30,2018, the group suffered pre-tax losses of about RM9.5mil against a profit of RM28.7mil a year ago as revenue skidded by 33% to about RM288mil from RM429mil year-on-year.

“For the timber division, a decrease in revenue was mainly due to the reduction in log production volume,” it said, adding that log output was down by 60% over a 12-month period

Jaya Tiasa said lower log output had resulted in lower production and sales of plywood and veneer in downstream manufacturing.

Another Sarawak-listed timber group WTK Holdings Bhd also recorded dismal performance of its timber business, with a pre-tax loss of RM5.8mil in 1H-2018 as compared to pre-tax profit of RM14.2mil in 1H-2017 as revenue dropped by 3.3% to RM316.1mil from RM326.9mil .

“The lower revenue was mainly attributed to decreased sales from plywood by 8.2% but compensated by 11.4% increase in logs sales revenue,” WTK said in notes accompanying its latest financials.

During the period under review, plywood sales volume was down by 12.2% due to fewer new orders received in order to clear the backlog orders. Accordingly, pre-tax profit from plywood sales fell drastically to RM1.7mil from RM14.2mil in 1H-2017.

The company said revenue from logs sales jumped by RM10.7mil in 1H-2018 as more logs were sold locally as a result of favourable weather conditions that facilitated transportation and sales of the timber.

Despite higher sales revenue,the logs segment registered a pre-tax loss of RM1.9mil from pre-tax profit of RM6.2mil in 1H-2017.

“This was mainly due to higher local sales of round logs with lower selling price, coupled with higher cost of production resulting mainly from the increase in hill timber premium rate effective July 1, 2017,” added WTK.The hill timber premium rate was raised from 80s en per cu m to a whopping RM50 per cu m.

On its market outlook, WTK is positive about the performance of its timber business.

“The stable Japanese economy will sustain the demand for the group’s plywood, in particular its niche floor-base plywood which commands a price premium over other grades of plywood.

“Additionally, with the current tight supply situation of plywood due to shortage of quality logs for production, it will fuel further price increase going forward due to demand continues to outstrip supply. This is expected to have a positive effect on the group’s plywood business.”

On logs, WTK said:”The group’s continuous efforts to improve production efficiency to achieve lower costs of production,coupled with gradual revision of its selling prices for both local and export markets to counter the effect of the increase in hill timber premium rate,are expected to have a position effect on the group’s log business.”

India is WTK’s key export market where demand for imported logs remains strong.

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