‘FY16 earnings forecast for Ta Ann achievable’
KUCHING: The financial year 2016 (FY16) earnings forecast for Ta Ann Holdings Bhd (Ta Ann) has been deemed achievable.
For the first nine months of FY16, earnings made up 70 per cent of the research arm of Public Investment Bank Bhd’s (PublicInvest Research) full-year earnings.
It believed its earnings forecasts were achievable given the stronger US dollar movement, closing at 4.4862 and a jump in crude palm oil (CPO) prices, averaging at RM2,948 per metric tonne (MT).
“However, timber segment is expected to experience margin squeeze due to softer timber prices,” the research arm said in a note yesterday.
The fourth quarter (4Q) fresh fruit bunch (FFB) production is expected to be affected by the lagged effect of El Nino and likely to post softer production data compared to the prior year.
On Ta Ann’s capital expenditure (capex) guidance for FY17, PublicInvest Research noted that management has allocated RM90 million capex for this year with RM60 million for existing immature areas and new areas under the Native Customary Rights (NCR) joint-venture partnership.
It is also for new mechanisation for fruit collection and evacuation due to shortage of foreign labour, RM20 million for plywood and logging plant upgrades and the remainder will be used for new tree plantings.
“Management is looking at FFB production growth of 10 per cent to 13 per cent based on the estimated mature area of 37,000 hectare (ha) and fresh fruit bunch (FFB) yield of 20 MT per ha.
“However, the persistent El Nino’s effect could pose a threat to the FFB production target, which could potentially see the production target dragged by three to four per cent,” it said.
Moving forward, CPO price performance will be the key influence to PublicInvest Research’s FY17 earnings forecast.
PublicInvest Research’s sensitivity analysis showed that for every RM100 increase in CPO price, it will enhance the group’s earnings by about five per cent.
“Assuming that FY17 average CPO price exceeds our CPO price assumption of RM2,600 per MT, Ta Ann is likely to deliver betterthanexpected results this year,” the research arm said.
It added that for the first half of FY17 (1HFY17), timber segment is expected to remain soft while plantation segment should deliver strong earnings growth, bolstered by CPO price rally and production growth. PublicInvest Research highlighted that management is targeting to see a steady cost of production for Ta Ann’s timber and plantation arms this year.
“It is looking at FFB cost of RM280 to RM300 per MT despite higher fertiliser cost weighed in due to weaker ringgit, which will be cushioned by improved FFB production,” the research arm said.
The research arm added that for timber, log cost is expected to stay around US$ 120 per cubic metre while plywood cost will range around US$ 430 to US$ 440 per cubic metre. Overall, PublicInvest Research continued to rate Ta Ann with an ‘outperform’ call and an unchanged target price of RM4.42 per share.