Logs division to the rescue for Ta Ann
KOTA KINABALU: A sharp rise in timber division profits boosted Ta Ann Holdings Bhd’s (Ta Ann) performance in the third quarter of financial year 2018 (3QFY18) thanks to a surge in its timber export volumes after the increase in export quota for its Kapit Forest Management Unit.
To note, Ta Ann’score net income (CNI) for the first nine months of FY18 (9MFY18) amounted to RM47.4 million was within expectations of analysts.
This comes as its timber division seeing a profit before tax (PBT) of RM9.6 million against RM3 million seen in 2Q and a loss before tax of RM7.2 million in 1Q.
“This can be attributed to the surge in timber export volume after the increase in export quota for its Kapit Forest Management Unit,” said analysts at MIDF Amanah Investment Bank Bhd (MIDF Research).
The company has been allowed to raise the timber export quota to 40 per cent (from 20) for Kapit Forest Management Unit which was certified in early 3Q.
“We expect the improvement to be sustained going forward.”
Meanwhile, Ta Ann’s plantations division continued to suffer due to lower average selling prices (ASPs) of crude palm oil (CPO).
Year on year, Kenanga Investment Bank Bhd (Kenanga Research) saw that Ta Ann’s plantation PBT plunged by 55 per cent on lower ASP of CPO by 19 per cent at RM2,235 per metric tonne and also a drop in fresh fruit bunch’s ASP by 21 per cent that led to margins erosion.
“We continue to expect stronger plantation contribution in 2H18 driven by higher production on better FFB and CPO sale volumes despite softer CPO price outlook which remains a challenge,” Kenanga Research said in a spearate note.
“We envisage the timber division to improve profit-wise, spearheaded by appreciating timber prices and better sales volume as a result of increase in log exports proportion.
“Ta Ann has completed the first phase of its on-going timber certification programme, of which 40 per cent of the 149,756 ha certified concession areas are allowed for exports.
“In addition, two more FMUs certification over a total forestland of 196,187 ha will be completed by 2019. We expect timber performance to gradually improve going forward, in view of the recent certification award, affording it a pricing premium leading to better profitability.”
Affin Hwang Investment Bank Bhd (Affin Hwang Capital) also anticipated further upside for both Ta Ann’s plantation and timber divisions.
“We expect future earnings to grow underpinned by higher contribution from both the plantation and timber divisions,” it predicted.
“We expect log production as well as export log sales volume to be higher in 2019-20E due to Ta Ann’s new Certificate for Forest Management for its subsidiary, Tanjong Manis Holdings Sdn Bhd, under the Malaysian Timber Certification Scheme (MTCS), which allows them to increase their log exports quota for logs harvested under this forest management.
“Also, we believe FFB and CPO production to increase going forward as FFB yield improves and matured plantation hectarage rises.”