TA ANN HOLDINGS

Target price: RM4.25

AFFIN Hwang Capital Research continues to like Ta Ann Holdings for its good plantation earnings prospects, given the company’s increasing matured plantation area, rising fresh fruit bunch (FFB) and crude palm oil (CPO) production.

The research house, however, cut its 2017-2019 earnings per share forecasts for the company by 5%-25%, mainly to take into account the recent cut in export quota, lower log production and the higher cost of production assumptions for the timber division.This, it said, was partially mitigated by an increase in the log average selling price (ASP) assumption by 8% year-on-year in FY17 to FY19. “We believe it will be a challenging environment going forward for the timber division given the increase in hill timber premium as well as the reduction in export quota.

“Nevertheless, we believe that the likely increase in plantation division earnings would be able to offset the drop in timber division earnings,” it said in a note.

The research house has a lower target price of RM4.25 from RM4.57 previously on the counter due to the earnings cuts.

With a 22.5% upside potential to its new target price, it maintained its buy rating on Ta Ann.

It said the key downside risks to its buy rating included a major disruption in log and palm oil harvesting due to extremely bad weather conditions and a sharp drop in ASP for timber products. Other risks are the possibility of major losses at its Tasmanian plant, unfavourable policies curtailing palm oil exports and weakness in the currencies of key import markets, curbing demand and prices.