Ta Ann - Sustainable income from plantation logs

News    

- Over the weekend, it was reported in Starbiz that Ta Ann is increasing the harvest of its plantation logs to produce hybrid plywood.  

- In 2011, Ta Ann started harvesting planted acacia trees from logged-over areas in Bintulu, which was reforested more than a decade ago.  

- About 95% of the company's planted forests are cultivated with acacia trees, which take about 15 years to mature.

Comments   

- We are overall positive on the news as the log extraction yield of about 150 m³ for plantation logs is at least three times higher than the usual logging production.

- In the longer term, this will provide another source of earnings growth from FY16E onwards for the company as nearly 1,000 ha of its plantation logs mature.

Forecast   

- We are maintaining our FY12E-FY13E earnings of RM179m-RM193m. FY16E earnings have been raised by 1% to RM220m as the first significant batch of plantation logs planted in 2001 matures.

- However, plantation logs volume contribution will still be minimal or less than 2% of the group’s earnings in FY12E and FY13E based on our estimate.

Rating  MAINTAIN OUTPERFORM

- Key earnings growth will still be the plantation segment as we expect Ta Ann’s FFB to grow by 30% YoY to 596,000 mt in FY12E.

- In FY11, plantation segment contributed 77% of the group’s PBT.

Valuation    

- No change to our TP of RM7.75 based on Fwd PER of 13.4x of FY12E EPS of 57.9 sen.

- Our Fwd. PER of 13.4x is based on the 5-year average historical Fwd. PER.

Risks 

- A sustained drop in CPO prices.

- Lower than expected FFB growth.

- Lower than expected export logs and plywood prices. 

Source: AmeSecurities