Ta Ann a cheap plantation proxy
KOTA KINABALU: Ta Ann Holdings Bhd’s (Ta Ann) shares are currently being hailed as a cheap proxy into the plantation sector.
In a company update report, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) believed Ta Ann’s current discount is unjustified as it has above-average dividend yields of 2.9 per cent and steady oil and kernel extraction rates (OER and KER) of 21 and 4.9 per cent.
Additionally, the group also boasted an undemanding an enterprise value over planted hectare (EV/planted ha) of RM32,200.
In comparison, other small-cap plantation players had lower values with an average dividend yield of 2.6 per cent, an OER of 20.4 per cent, a KER of 4.5 per cent and a more demanding EV/planted ha of circa RM57,900.
Based off these figures alone, it’s clear that Ta Ann is an attractive stock right now, but Kenanga Research believes that the group is set for more as a key differentiator for Ta Ann against its small-cap peers is its pipeline of palm maturity.
“Pre-Sarawak Plantation Bhd (SPB) acquisition, our estimates indicate that Ta Ann’s immature and young palm estate of circa 26 per cent of total planted trees is lower than the sector average of circa 37 per cent.
“However post-SPB buy-out, Ta Ann’s planed area will be enlarged by circa 23 per cent to circa 57,272 ha based on a 30.4 per cent acquisition stake. This would increase its immature young pal estates to circa 43 per cent of the planted area which is well above the sector average of circa 37 per cent.
“And with management guiding circa 2,400 ha of new planting under the new NCR projects ion FY18, we are encouraged by the group’s expansion of young palm area as we anticipate consistent fresh fruit bunch (FFB) output growth moving into a higher yielding age bracket,” guided the research arm.
Supported by an improving FY19-19E FFB yield of 18 MT per ha, Kenanga research expects Ta Ann’s 2-year FFB to grow at a CAGR growth rate of 23 per cent – higher than their estimate of 12 to 22 per cent for small-cap planters’.
“Post-SPB, our model indicates palm oil earnings contribution to the group will be slightly higher at 98.4 to 96.3 per cent versus preSPB’s estimate of 98.1 to 95.8 per cent respectively,” added the research arm.
Besides this, Ta Ann’s timber segment is also looking strong as the segment is expected to lend some support to the issue of the weakening US dollar and strengthening ringgit that has affected most exporters in the country.
With a sudden spur of Japanese plywood demand and shortages of log production in the market, Ta Ann is expected to be one of Sarawak’s key beneficiaries to be enjoying premium prices for available quality logs like Meranti.
Market price for Sarawak Meranti is over US$594 per cubic metre or a 122 per cent premium over average log prices of US$268 per cubic metre for the past 12 months.
“We expect Ta Ann’s timber segment to see a reversal with FY18-19E EBIT of RM2.9 to 7.1 million vs its FY17A loss of RM10.3 million, driven by higher seasonal productivity and improved exports logs’ average selling prices,” concluded the research arm.