Ta Ann on a good run, more upside expected

Timber company, Ta Ann Holdings Bhd has seen some rally, coming out of the 6- month long downward trend from the RM4.16 high on last Oct 3.

The company is currently trading at a PE ratio of 10.7x and P/NAV ratio of 1x, which is lower than most peers. The company had been consistently profitable in the past 5 financial years.

Net profit fluctuated between RM47.2mil and RM320.5mil , with the net profit in the latest financial year being RM157.2mil . Ta Ann recent first half of FY2024 (1HFY2024) results have fallen below expectations.

However, analysts maintained their positive outlook on the counter due to attractive dividend yield and better outlook for the rest of the year. Ta Ann’s 1HFY2024 core profit, excluding specific items, was flattish at RM80.5 million.

The company faced significant challenges during the first half, including a steep decline in timber sales, which tumbled 38.9% year-on-year (y-o-y) to RM46.8 million. This was driven by a 73.7% y-o-y drop in log sales and a 6.9% decline in plywood sales. Average log export prices fell 23% y-o-y to US$196/cubic metre (cu m), while plywood prices dropped from US$557/cu m to US$473/cu m.

On the other hand, palm oil sales increased by 3.7% y-o-y to RM318.1 million, with the average crude palm oil (CPO) selling price rising from RM3,735/metric tonne (mt) to RM4,000/mt. However, the overall earnings were dragged down by the timber segment, which reported a loss of RM5.8 million. Management has lowered its fresh fruit bunch (FFB) production target due to slow growth in the first half.

On the positive note, management expects production to recover starting from July. Based on the sensitivity analysis, its profit after tax will fluctuate by RM12 million for every RM100/mt change in CPO price movement.

Ta Ann’s total capex allocated for the year is RM64 million, with RM11 million dedicated to the timber segment, RM43 million to the plantation segment, and RM10 million for palm oil mills upgrade.

Analysts anticipate improved performance for Ta Ann in 2H2024, attributing the 1H2024 timber division’s lower exports to extremely wet weather.

Management expects timber production to rebound with drier conditions from July 2024, and the oil palm division’s earnings should continue to rise due to high CPO prices and lower production costs.

On a positive note, Ta Ann has a strong balance sheet and attractive dividend yields. It also noted that Ta Ann plans to apply more fertilisers in FY2024, which will likely lead to higher fertiliser costs for the year.

Investors should stay positive on Ta Ann’s long-term prospects, driven by strong performance in the plantation segment and potential recovery in timber production starting from July.