This article first appeared in The Edge Financial Daily, on June 27, 2016.

Ta Ann Holdings Bhd
(June 24, RM3.15)
Maintain buy with a lower target price (TP) of RM4.42: Ta Ann Holdings Bhd’s total exports of logs in the first quarter of financial year 2016 (1QFY16) fell by 33% year-on-year to 31,266 cubic metres. This was mainly attributable to slow demand for logs from India. We believe Indian buyers are now more cautious about their purchases of logs and the decline in prices is likely to attract them again.

Despite an improvement in Japan’s housing starts, Ta Ann’s plywood exports continued to weaken in 1QFY16. We believe that plywood exports this year are likely to remain soft, mainly attributable to a weakening demand for Malaysian plywood. Also, Japan has recently postponed its plan for a consumption tax hike to 2019. Hence, we believe there will not be any rush in orders for plywood from Japan.

In view of the soft timber division, we expect the plantation division’s profit before tax (PBT) contribution to Ta Ann to surpass that of the timber business this year, accounting for 63% of group PBT in FY16 estimate (FY16E). This is based on an expected increase in fresh fruit bunch (FFB) and crude palm oil (CPO) production, as well as higher CPO average selling prices.

We are keeping our FY16E to FY18E earnings forecasts unchanged for Ta Ann, but we have cut our earnings per share forecasts by 16.7% for FY16E to FY18E to adjust for a one-to-five bonus issue. Ta Ann’s expected dividend yield remains attractive at 5.3% in FY16E. This would be one of the highest dividend yields among timber and plantation companies.

We maintain our “buy” rating on Ta Ann, with an adjusted sum-of-parts-derived 12-month TP of RM4.42 (after the one-to-five bonus issue). We continue to like Ta Ann for its rising plantation earnings on increasing mature plantation areas, FFB and CPO production. — Affin Hwang Invesment Bank, June 24