KUALA LUMPUR: Affin Hwang Capital research maintained its buy call on Tan Ann Bhd with an unchanged target price of RM3.25 on measures to keep the palm oil division profitable and signs of recovery in the timber division.
In a note, the research house said more of Ta Ann's plantation areas are reaching prime age with improving FFB yield and CPO OER, although CPO prices remain volatile.
"We maintain our CPO ASP assumption at RM2,200-2,500/MT for 2019-21E," it said.
According to Affin Hwang, Tan Ann's 30.4% stake in Sarawak Plantation Bhd
(SPB) will also yield higher contribution as the latter underwent a transformation plan.
"In 2018, SPB underwent a transformation plan, with a change in management, strengthening of standard operating procedures, upgrading of facilities, intensification of estate enhancement and resource rationalisation.
"As a result, SPB’s FFB production in 5M19 has increased by 17.9% yoy to 98.5k MT. We expect SPB to contribute positively to Ta Ann’s earnings (contributed c. 17% to Ta Ann’s 1Q19 net profit)," it said.
Meanwhile, log production volume improved after the first phase of the forest sustainability management exercise.
It said demand for Ta Ann's timber products has remained healthy although the change in type of wood composition being sold has affected log and plywood selling prices.