TA ANN HOLDINGS BHD

By Public Investment Bank Research Outperform Target price: RM4.14

TA Ann’s proposed acquisition of a 30.3% stake in Sarawak Plantation Bhd (SPB) could bring value to the company, according to Public Investment Bank Research (PIB), which recently attended a briefing on the matter.

Although SPB’s fresh fruit bunch (FFB) yield is unattractive, PIB noted Ta Ann’s confidence in being able to bring in the required technical expertise to help propel productivity. The proposed acquisition was in line its management’s long-term target of achieving 100,000ha land bank.

PIB maintained its “outperform” call on Ta Ann, with an unchanged target price of RM4.14.

The brokerage expected Ta Ann to see its FFB production growing at a decent 10%-18% for the next two years, banking on the young age profile. On the timber segment, Ta Ann’s log production volume was expected to rise from this year, driven by an increased contribution from plantation logs, while natural log production would improve by 10%.

On the proposed acquisition of a 30.3% stake in SPB, Ta Ann did not rule out more stake acquisitions in the future, PIB said, noting that the company was ultimately aiming for a controlling stake in the target company.

PIB said although the RM169mil proposed stake acquisition was fairly priced, Ta Ann would need to address several key issues such as SPB’s low FFB yield and disputed land issue. It noted that if Ta Ann could achieve an annual 30% recovery rate on the disputed land from this year, the deal could contribute a 7%-22% increase in FFB production to SPB over the next five years.

In addition, if Ta Ann could successfully implement initiatives to improve the productivity for mineral land plantation of SPB, the group could see a normalised FFB production yield within the next two years and would likely be on par with Ta Ann’s own FFB yield by 2020.