Hike in hill timber charges negative for timber players

KUCHING: The proposal to raise Sarawak’s hill timber charges to RM50 per cubic metre from 80sen is negative for earnings of timber players such as Ta Ann Holding Bhd (Ta Ann).

To note, Sarawak will increase the cess payment for hill timber from 80sen to RM50 per cubic metre – a hike of 6,250 per cent – starting July 1, 2017.

“The higher cess payment on hill logs will raise Ta Ann’s cost as we understand approximately 40 to 50 per cent of its log production comes from hill logs,” observed analysts with Maybank Investment Bank Bhd (Maybank Research) in a note yesterday.

“In 2016, Ta Ann extracted 446,846 cubic metres of logs including hill logs, according to its announcement to Bursa Malaysia.

“For 2017, given the lower log production quota set by the Sarawak government, the volume extracted by Ta Ann should be at least 10 per cent lower year on year.

“Based on our preliminary estimates, this development will result on additional cess payment of RM8 million per annum.”

Assistant Minister for Environment Len Talif Salleh earlier this week informed reporters that the rate has not been reviewed in the last three decades.

The move aims to “send a message to them that production from the (primary) forests will be reduced,” he added.

Last month, The Borneo Post reported a circular dated April 12 issued by State Forestry director Sapuan Ahmad that the chargeable premium for hill timber logs would be raised.

The circular titled “New Rate of Hill Timber Premium (Sarawak Foundation Fund)” stated that “Chief Minister/Minister of Resource Planning and Environment, in accordance with Section 46 (1) of the Forest Ordinance, 2015, has approved the increase in the rate of Hill Timber Premium, that is premium chargeable on all species of logs harvested from hill forests and logs of hill species from agri-conversion areas”.

The Sarawak government is looking at a collection of RM200 million to RM300 million per annum under the revised rate, compared to about RM15 million under the present rate.

The cess money collected would be channelled to the Sarawak Education Fund, of which Yayasan Sarawak is the secretariat.

“We maintain our earnings forecasts for now but there is a four to six per cent downside risk to our FY17 to FY19 earnings per share forecasts if the revised cess is implemented.

“This also assumes the industry – including Ta Ann – fails to pass on the additional cess charges to their end buyers. Our current target price of RM4.25 pegs the stock on unchanged 15 times 2017 price earnings, its five-year mean.”