12/05/2008 (The Star Online) - TIMBER giant Ta Ann Holdings Bhd is looking at substantially expanding its oil palm plantation within the next five years to balance its business portfolio.

Group managing director Datuk Wong Kuo Hea said the group planned to acquire more native customary rights (NCR) land in Sarawak as the group was not keen on investing in oil palm plantations in Indonesia.

He said NCR land currently accounted for about 15,280ha of the group's total plantation land totalling 39,383ha.

Of late, many local plantation companies are looking at NCR land development schemes in Sarawak via joint ventures.

Sarawak is believed to have about 1.5 million hectares of NCR land suitable for oil palm cultivation.

“The high CPO prices in 2007 have enabled us to achieve good returns for our CPO, thus cushioning the impact of the volatile timber earnings,” Wong said.

Oil palm is the third largest contributor to the group's net profit last year at 21%, after plywood (40%) and logging (37%).

The balance is from saw milling (1%) and property (1%).

“We expect oil palm to contribute significantly to the group's earnings and revenue, as the present planted area of over 18,000ha, coupled with this year's targeted 6,000ha of planting, will fully mature in three years,” he said. )

“However, this projection will depend on the CPO price remaining at the current (high) levels,” Wong added.

Ta Ann also plans to construct two more 60-tonne per hour CPO mills within the next five years with an estimated cost of RM35mil per mill.

Merrill Lynch said in its latest report, that Ta Ann had a “meaningful exposure” to the palm oil segment.

It said the group's venture into palm oil had proven to be a well-planned and profitable move as CPO prices had hit new highs since early this year.

For this financial year ending Dec 31, the brokerage expects palm oil to contribute 27% to Ta Ann's group earnings. Its CPO price assumption is RM3,600 per tonne for 2008.

In the longer term, competing usage between food and industrial/biofuel will keep prices of all vegetable oil high.

Merrill Lynch has upgraded Ta Ann from “neutral” to “buy” with a price target of RM10.15.