Positive on Ta Ann’s FY20 outlook but Covid-19 to dampen demand
KUCHING: Analysts are generally positive on Ta Ann Holdings Bhd’s (Ta Ann) financial year 2020 (FY20) outlook but note that Covid-19 will dampen the group’s timber segment performance.
The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) remained encouraged on Ta Ann’s FY20 outlook, premised on the favourable crude palm oil (CPO) price environment and gradual easing of lockdowns.
“The profit contribution from the oil palm segment is expected to achieve better growth, driven by expected higher average selling price (ASP) and relatively resilient fresh fruit bunch (FFB) production in FY20,” MIDF Research said.
On the contrary, MIDF Research expected the group’s timber segment to potentially experience tepid performance from the anticipated lower average selling price (ASP) and sales volume of its wood-based products from major importers such as India and Japan in the intermediate terms.
It noted that this is based on the weakening economic indicators that could reduce development activities leading to reduced demand for its timber products.
Looking ahead, the research arm believed that the well-being of the group will still be dependent on the Covid-19 situation and its effects on the economic activities in the short and medium terms.
“We are now less optimistic on the outlook of the timber division in view of expected lower ASP of wood-based products and sales volume in FY20.
“The weakening indicators and economic potential intermittent lockdowns could potentially reduce the demand and ASP of its timber products especially from its major export markets such as India and Japan.
“Competition emanating from Indonesia’s plywood products could also serve as another dampening factor.”
As such, the research arm expected Ta Ann to be more attentive in churning out production out of the group’s additional 130,000 hectares (ha) of forests which expected to be certified as at the end of the first quarter of FY20 (1QFY20).
“Moving forward, we opine that this could potentially put a dent in the group’s earnings growth momentum.”
“With the Forest Management Unit (FMU) certification for Pasin completed, the group’s total certified forest land now stands at circa 346,000 ha, pointing to an inevitable surge in log production volumes.
“We reckon investors should look beyond 2QFY20 results, which should see compression in profit margin from its timber division from slower demand (virus-led).”