Timber division still a key concern for Ta Ann

KUCHING: Analysts are still concerned about Ta Ann Holdings Bhd’s ( Ta Ann) timber segment’s short term outlook as its plywood division has been going through a rough patch, recently.

Following a recent meeting with Ta Ann, the research arm of Maybank Investment Bank Bhd (Maybank IB Research) said that elevated timber inventory levels as at end–September 2017 (largely at its plywood division) remains its key concern even as Ta Ann assured that it is taking steps to address the situation in 4Q17.

“While Ta Ann is taking steps to address the situation, we remain concern over its short term plywood outlook,” it said.

The research team pointed out that in 3Q17, its timber division fell into the red due to losses at its plywood division whereby the latter suffered from the delay in shipment of the products, and shortage in certain wood supply which resulted in a build- up in group inventories to RM193 million as at end-3Q17.

“Of these, the plywood inventory was circa RM143 million, which is high in our view as it represents circa 37 per cent of FY16’ s plywood revenue,” it opined.

It added, “We maintain our earnings forecasts for now, preferring to stay on the side of caution. The last time Ta Ann’s inventory was this high (back in FY12), it did an impairment on its timber division.”

On the other hand, Maybank IB Research highlighted that in the first nine months of 2017 (9M17), Ta Ann’s oil palm earnings has benefited from lowerthanexcepted fertilisation application at less than 50 per cent of full-year requirement due to the relatively wet weather in Sarawak.

“Ta Ann plans to speed up fertilisation work in 4Q17 but is unlikely to complete its full-year programme.

“Some of the fertilising catchup work is likely to flow into the early part of 2018,” it added.

As for FFB output, it noted that Ta Ann’s 9M17 growth was 15 per cent y-o-y, beating the research team’s full- year growth forecast of 12.4 per cent y-o-y.

“But we keep our growth forecast for now as November to December are typically slower production months,” it added.

All in, Maybank IB Research pegged a ‘ hold’ call on the stock.

“Despite 13 per cent upside potential to our unchanged target price of RM3.86 per share on 15-folds FY17 PER (five-year mean), we keep Ta Ann as a HOLD amidst uncertainty over its timber outlook,” it added.