KUCHING: While Ta Ann Holdings Bhd’s (Ta Ann) first half of the financial year 2015 (1HFY15) beat expectations, there has been mixed views from analysts on the group’s 2HFY15 outlook.
Ta Ann noted in a filing on Bursa Malaysia that for the first half year of 2015, the revenue and net profit were RM479.04 million and RM57.92 million, compared to RM457.58 million and RM57.12 million respectively of the corresponding period in 2014.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), Ta Ann’s 1HFY15 core net profit (CNP) of RM59 million was better than expected as it made up 57 per cent of consensus estimate of RM103 million.
“It is also above ours at 65 per cent of our estimate of RM91 million,” it said.
MIDF Research believed that the variance was due to stronger US dollar in 1HFY15 at an average of US$/RM3.64, an increase of 11 per cent year on year (y-o-y) against 1HFY14’s average of RM3.27.
The research arm noted that Ta Ann’s timber division sells the group’s Export Logs and Plywood in US$ and hence stronger US$ will translate into higher revenue for the company.
Meanwhile, Ta Ann’s first half of 2015 (1H15) CNP accounted for 56 per cent and 57 per cent of AmResearch Sdn Bhd’s (AmResearch) and consensus estimates, respectively.
AmResearch noted that as expected, apart from the 10 sen per share dividend for the first quarter of 2015 (1Q15), no additional interim dividend was declared.
The research house expected another five sen per share payout for the rest of the year.
Though the result beat expectations with potential earnings upside ahead in 2H15, AmResearch remained cautious in view of the current low crude palm oil (CPO) prices.
The group achieved 1H15 CPO sales at an average of only RM2,153 per tonne versus the research house’s full-year assumption of RM2,400 per tonne.
Additionally, Ta Ann may not be able to achieve AmResearch’s fresh fruit bunch (FFB) target of 680,000 tonnes for FY15, after having only achieved 38 per cent of that or 260,102 tonnes.
“Granted Ta Ann will benefit from the weakening ringgit,” the research house said, “It has benefited from an upward trend in log prices following the shrinking of supply from Sarawak.” Log prices remained strong, with the 1H average selling price (ASP) at US$275 per cubic metre (cu m) versus the research house’s assumption of US$220 per cu m.
AmResearch noted that Ta Ann’s Tasmanian operations appear to have turned around.
It further noted that encouragingly, the group’s plywood manufacturing operations posted a 1H15 profit before tax (PBT) of RM17.7 million versus RM8.7 million a year earlier.
Nonetheless, AmResearch believed Ta Ann Tasmania may have to contend with start-up costs for its plywood mill there that just started operations about three weeks ago.
The research house maintained its earnings forecasts for Ta Ann.
In contrast, MIDF Research increased its FY15 CNP forecast by four per cent to RM95 million.
“FY16 CNP is increased by seven per cent to RM96 million,” it added The research arm has assumed higher US$RM rate of 3.80 and 3.90 for FY15 and FY16 respectively.
On Ta Ann’s earnings outlook, MIDF Research noted that management has anticipated 3QFY15 profit to be better for the plantation division as FFB volume usually peaks in this quarter.
“Good performance seen in timber division should be sustained due to firm demand for timber products and favourable exchange rates,” it said.
The research arm concurred with management as current US$RM rate exceeding 4.00 (against 1HFY15’s 3.64) should bode well for Ta Ann.
On another note, AmResearch expected the Malaysian Anti-Corruption Commission (MACC) to wrap up its investigations soon into illegal logging activities in Sarawak.
The research house recalled that in May, Ta Ann announced that the group and two subsidiaries were cooperating with the MACC’s probe.
“We understand that the probe was likely to be completed within three months,” it said, adding that Ta Ann has said the group’s policy is to use only legal logs and its processes and inputs are legally verified.
All in, AmResearch maintained ‘hold’ on Ta Ann, with a downward revised fair value of RM3.69 per share (versus RM3.98 per share previously), based on 13-fold FY15F PE (versus 14-fold previously).
On the other hand, MIDF Research upgraded the stock to ‘buy’ with a higher target price of RM4.30 per share.
The research arm’s target price increase was due to the increase in FY16 core earnings per share (EPS) by seven per cent to 25.93 sen (from 24.12 sen).
It noted that the valuation method of 16.6-fold forward price earnings (PE) (mean valuation) on FY16 EPS remained unchanged.
“Ta Ann timber division is poised to benefit from higher US$RM and better Export Log prices.
“This should more than offset weak CPO price currently,” it added.