KUCHING: Ta Ann Holdings Bhd (Ta Ann) has been projected to record good earnings recovery in 2020E due to stronger crude palm oil (CPO) prices while 2021E earnings growth would be underpinned by higher fresh fruit bunch (FFB) and CPO production as well as a recovery in the timber division.
For 2020E, Affin Hwnag Investment Bank Bhd (Affin Hwang Capital) expected earnings to grow by 69.7 per cent year on year (y-o-y) due mainly to higher contribution from the plantation division given the stronger CPO prices and another 24.5 per cent y-o-y in 2021E due mainly to a recovery in the timber division and higher FFB and CPO production.
Affin Hwang Capital made no changes to its CPO assumptions for Ta Ann at RM2,650 to RM2,600 per metric tonne (MT) in 2020-2021E, compared to 2019 CPO average selling price (ASP) of RM2,052 per MT.
“Palm-oil prices have seen a V-shaped recovery in 2020 and we believe it will remain supported going into the first half of 2021 (1H21), underpinned by tight stock levels, concerns about CPO production given the weather uncertainties and strong prices of other edible oils,” the research firm said.
“Looking at 2H21, we believe prices could potentially be under pressure as production picks up.”
As for Ta Ann’s own FFB production, Affin Hwang Capital expected it to improve in 2021E by about 11 per cent y-o-y to 799,000 MT underpinned by better weather conditions and a higher FFB yield, after a circa 3.5 per cent y-o-y drop to 722,000 MT in 2020E due to the lagged effect of the dry weather in 2019, lagged effect of lower fertiliser application and labour shortage issues.
Meanwhile, the research firm expected CPO production to grow by about 10 per cent y-o-y to 278,000 MT in 2020E (due to an increase in the volume of FFB processed given the increase in purchase of outside FFB crop) and another six per cent growth in 2021E underpinned by an increase in oil extraction rate (OER) and a higher volume of FFB processed.
“Currently, 11 out of 13 Ta Ann’s estates and three CPO mills have obtained the Malaysian Sustainable Palm Oil (MSPO) certification.
“The group expects the remaining two estates to be MSPO certified by year-end or early 2021 at the latest.”
On timber products, Affin Hwang Capital opined that there will be improving demand for these as the construction sector resumes.
The research firm recapped that the lockdowns and restrictive movement controls due to Covid-19 pandemic in most countries since early 2020 have hit the global economy hard.
It also recapped that the immediate impact on the market was an increase in the unemployment rate and a slowdown in consumption.
“Fortunately, with the easing of lockdowns since the third quarter of 2020 (3Q20), demand for timber products has improved, especially from India and Japan, Ta Ann’s largest customers for logs and plywood products, respectively.
“Also, Ta Ann’s 3 forest management units (FMU) – Kapit FMU, Raplex FMU and Pasin FMU, with a total area of 345,900 hectares (ha) of forest land, are now fully certified under the Malaysian Timber Certification Scheme (MTCS) and this allows the group’s timber operation to be sustainable in terms of supply of certified logs to both its plywood mills and sawmills as well as the logs export market.
“The full certification of its forests will place Ta Ann in a better position in terms of market competitiveness.”
According to Affin Hwang Capital, there has been an increase in export logs and plywood average selling prices since 3Q20 as demand improves with the re-opening of economies.
The research firm believed the re-opening of economies has allowed construction works to resume and this has helped to improve the demand for timber products.
“We expect export logs and plywood prices to be circa US$200 to US$220 per cubic metre (m3) (2019 ASP: US$220 per m3) and US$500 to US$530 per m3 (2019 ASP: US$530 per m3), respectively, for 2020-21E.”
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