Malaysian Reserved (28/05/2021) - TA ANN Holdings Bhd is expected to post strong earnings, driven by economic recovery in its key timber export markets and uptrend in crude palm oil (CPO) prices, which continue to be a boon for its plantation segment.

The Sarawak-based resource group’s net profit quadrupled to RM40.98 million for the first quarter ended March 31, 2021 (1Q21), on the back of higher CPO prices, while its revenue grew 35% to RM340.62 million for the quarter.

RHB Research analyst Hoe Lee Leng said the group’s 1Q21 results came within expectations, but were dragged down by weaker log production due to wet weather conditions, resulting in weaker sales volume of its timber products.

Its timber section was in the black mainly on higher average selling prices which offset the lower sales volume.

“However, on a quarter-on-quarter basis, this segment returned to a profit after management consolidated resources at its mill in Tasmania, focusing on manufacturing plywood products for the local market. Moving forward, management reiterated its optimism to break even for its plywood division as prices of plywood products are on track for recovery,” Hoe said.

She added that in 1Q21, Ta Ann recorded a flat output for its fresh fruit bunches year-on-year. The disappointing performance of the division was due to the combination of adverse weather conditions, labour shortage and lack of fertiliser application in 2020.

While the adequate rainfall pattern in early 2021 should technically bode well for productivity this year, concerns on its labour situation may continue to impact productivity for the group, Hoe wrote in a resort yesterday.

Hoe maintained a ‘Buy’ call on Ta Ann with a target price (TP) of RM3.45 which offers a 20% upside and 6% yield.

Ta Ann’s shares closed the trading day at RM2.88 yesterday, valuing the company at RM1.27 billion.

“We have also adjusted our earnings for financial year 2021 (FY21) to FY23 by 4% to 6%, while reducing the log production growth by 2% to 10% and imputing higher cost assumptions for its timber segment,” Hoe noted.

Public Investment Bank Bhd said Ta Ann’s 1Q results were commendable and in line with its and consensus expectations, making up 26.2% and 26.7% respectively.

“In line with that, we maintain an ‘Out-perform’ call with a higher sum-of-parts-based TP of RM3.83 following our recent CPO price revision,” it noted.

Read more at https://themalaysianreserve.com/2021/05/28/ta-ann-to-ride-on-higher-cpo-prices/