Ta Ann rides on strong CPO price momentum

However, analysts expect the group to post stronger earnings in FY21, to be driven mainly by the uptrend in CPO prices, which will be a boon for its plantation segment.(File pic shows a part of aTa Ann Palm oil mill in Sarawak.)

PETALING JAYA: Ta Ann Holdings Bhd is reaping the fruits of the rise in crude palm oil prices (CPO).

The fortunes offsetted losses in its plywood business in financial year 2020 (FY20), which came as a result of weak average selling prices (ASPs) of products and higher raw material costs.

Things are looking up for the Sarawak-based group as it undertook a kitchen-sinking exercise at its timber division in Q4FY20 by closing down one of its two mills in Australia.

This dragged down FY20 timber division to a loss of RM35mil versus a profit of RM6mil in FY19.

The one-off exercise brought FY20 core net profit to RM65mil, which was below analysts’ expectations.

However, analysts expect the group to post stronger earnings in FY21, to be driven mainly by the uptrend in CPO prices, which will be a boon for its plantation segment.

As for the timber segment, RHB Research said “management has reiterated optimism on breaking even, as prices of plywood products have seen a recovery (of some 11% quarter-on-quarter) in the early months of FY21”.

In Q4FY20, RHB pointed out that Ta Ann had made compromises on its plywood pricing to achieve higher sales.

Some analysts, including Maybank IB Research, anticipated a small loss at the timber division in FY21 considering that the plywood import market in Japan remained depressed.

Overall, it has raised estimated earnings per share for FY21 by 17%, backed by the strong CPO price momentum.

Following this EPS revision, Maybank IB has also raised the target price of the stock to RM3.54 (from RM3.42 previously) on 15 times FY21 estimated price earnings ratio.

For the plantation division, CGS-CIMB Research forecast fresh fruit bunches output growth of 11% year-on-year in 2021 from new mature areas coming on stream.

However, it pointed out that there are downside risks to its production forecasts as the group only achieved 50% of its target fertilising requirement for its palm trees due to heavy rainfall in the second half of last year.

Another key risk is labour shortage, as the group is facing a shortage of 35% of its labour requirement currently.

The research firm, which reiterated its “add” call on the stock has a CPO price forecast of RM2,900/RM2,700 for 2021/2022.

On new planting activities, Public Investment Research noted that Ta Ann targets to plant 1,500ha this year versus the total of 1,000ha planted in FY20. About 700ha are replanted in FY20 and it planned to replant 1,000ha this year. The average age profile of its trees stood at 10.2 years old.

The research firm has a 12-month target price of RM3.68, while RHB saw the most upside at RM4.

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