Ta Ann Holdings - Expecting a Strong Catch-up in Final Quarter

Date: 
2023-11-29
Firm: 
PUBLIC BANK
Stock: 
Price Target: 
4.30
Price Call: 
BUY
Last Price: 
3.65
Upside/Downside: 
+0.65 (17.81%)

Excluding foreign exchange (FX) gain of RM7m and minority interest, Ta Ann’s 9MFY23 core earnings tumbled 54.2% YoY to RM128.3m, dragged by weaker earnings from both plantation and timber segments. In view of higher FFB production in the final quarter, the results were considered in line with our and the consensus expectations, though it only made up 64% and 74% of full-year forecasts, respectively. Maintain Outperform call with an unchanged SOPbased TP of RM4.30. A 2nd DPS of 15sen was declared for the quarter.

  • Dampened by both plantation and timber segments. The weaker sales of RM489m were attributed to a decline in both timber (YoY: -7.7%) and plantation (YoY: -19.8%) segments. 3QFY23 average CPO selling price retreated from RM4,500/mt to RM3,695/mt while 3QFY23 FFB production slipped 1% YoY to 210,829mt (9MFY23: 481,252mt, YoY: -5.1%). 9MFY23 OER was higher at 19.72%, up from 19.2% in 9MFY22. 
    Timber sales weakened 7.7% to RM92.9m as log sales fell 4.3% YoY to RM28.9m while plywood sales remained at RM64.2m. 3QFY23 average log export price slipped 15.6% YoY to USD227/cu m while plywood price tumbled from USD721/cu m to USD526/cu m. Log export volume rose 15.9% YoY to 27,133cu m while plywood exports volume recovered by 40% YoY to 23,600 cu m.
  • 3QFY23 core earnings dipped 36.7% YoY to RM59.6m. The weaker earnings were mainly affected by both timber (-68.3%) and plantation (- 29.4%) segments. 3QFY23 all-in CPO production cost remained at RM1,750/mt (PK-credit: RM350/mt) and (9MFY23: RM1,700/mt). Timber earnings sank from RM26m to RM8.2m, dragged by plywood-related losses from Tasmania as a result of excessive overhead costs and lower export earnings. Earnings contributions from 31%-owned Sarawak Plantation and JV-owned refinery was marginally lower at RM7.4m.
  • Outlook. Management expects FFB production to be flattish this year due to the wet weather condition, which affected the harvesting activities. For 2024, it has targeted FFB production growth of 10% to 770,000mt. On the CPO production cost outlook, it expects to be lower at RM1,800/mt, helped by higher production and lower fertilizer costs. Muriate of Potash, which made up 60% if total fertilizer components, has seen prices down by more than 60% YoY to RM1,600/mt while compound fertilizer has softened by more than 40% to about the similar level. On the fertilizer application, management is confident to achieve 100% of target for 2023. In terms of replanting activities, it only managed to replant 50% of target at 800ha for 2023 and it targets to replant 1,900ha for 2024. 2023’s mature area stands at 600ha and is expected to be higher at 800ha for 2024. New planting under the JV-owned land is expected to be less than 100ha for 2023 and 200ha for 2024. On the 2024 price outlook, management is looking at RM4,200/mt for CPO price, USD270/cu m for log price and USD560/cu m for plywood. Lastly, there is no worker shortage issue at the plantation.

Source: PublicInvest Research - 29 Nov 2023

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