Ta Ann’s 1HFY24 results disappoint as timber segment drags in 2Q

KUCHING (Aug 27): Ta Ann Holdings Bhd’s (TA Ann) first half of financial year 2024 (1HFY24) were below expectations as its second quarter (2Q) results slipped both quarter-on-quarter (q-o-q) and year on year (y-o-y) following as better earnings from its plantation segment were offset by losses in its timber division.

During the period under review, the group’s 1HFY24 core net profit (CNP) came in at only RM63.6 million which was below consensus expectations as it accounted for only 33 per cent of consensus full-year forecasts.

According to RHB Investment Bank Bhd’s research arm (RHB Research), the group’s plantation unit’s profit before tax (PBT) during 2QFY24 had grew by 13 per cent q-o-q or 19 per cent y-o-y due to an 18 per cent q-o-q or five per cent y-o-y higher output of fresh fruit bunch (FFB).

Ta Ann’s first seven months of FY24 (7MFY24) FFB production came in at 2.4 per cent y-o-y which was below its management’s five per cent y-o-y guidance but RHB Research guided that it viewed this to be within its own estimates of a 3.4 per cent growth in FY24.

Meanwhile, Ta Ann expectde FFB output to further ramp up in 2HYY24.

Despite the optimistic 2Q plantation results, the group’s results were dragged as its Timber segment PBT plunged by 229 per cent q-o-q or 170 per cent y-o-y to RM5.8 million.

“This was due to weak numbers from both the log and plywood sub-segments, with log output fell 16 per cent q-o-q in 2Q24, bringing 1H24 output to 90,000 tonnes, as a result of the extreme rainfall in Sarawak,” RHB Research reported.

The low output then caused the group’s sales volume to plunge by 53 per cent y-o-y in 1HFY24.

This was further exacerbated by its log average selling price (ASP) decreasing to US$213 per cubic metre (m3) in 1H24 as the global timber market continued its downturn.

“That said, it (Ta Ann) is still maintaining its ASP target of US$260 per m3 and output target of 290k tonnes for FY24 as the weather has begun normalising in July,” RHB Research reported.

However, it said it believed this was too bullish as Ta Ann’s YTD-July output is still weak at and have opted instead to adjust their FY24F growth from -25 per cent y-o-y to -36 per cent y-o-y.

Similarly, it also adjusted its FY25 and FY26F growth forecasts from seven and nine per cent y-o-y to five per cent y-o-y.

As for ASPs, the research arm cut its ASP assumptions for FY24F by eight per cent to US$240 per m3 as it assumed a continued downturn in timber markets.

Meanwhile, analysts at Kenanga Investment Bank Bhd (Kenanga Research) opined that timber demand and prices is likely to stay dull in the immediate to medium term due to economic uncertainty and higher borrowing costs that continue to dampen new construction and home building activities.

“A firmer Ringgit may further put off very price sensitive buyers. Ta Ann exports logs mainly to India which is growing but 1H mix of log type was less favourable while plywood exports to Japan was soft,” it said.

It’s not a doom and gloom however, as RHB Research is still expecting Ta Ann to see better earnings prospects in 2H24 on improved plantation productivity and moderating plantation unit costs.

Sharing a similar view, Kenanga Research maintains that CPO prices will likely be firm at RM3,800 per tonne for FY24 to FY25 due to global edible oil shortfall.

“Cost is likely to stay moderate as fuel and fertiliser costs have dipped by 10 to 30 per cent y-o-y while improving palm kernel prices could potentially cushion a pending minimum wage hike,” it added.

That said, both research houses still reckoned that the improving plantation contribution will still be negated by weak timber performance.

Kenanga Research downgraded its FY24 to FY25 core earnings per share forecast for Ta Ann by 14 and 11 per cent, respectively. Consequently, it downgraded its target price from RM4.00 to RM3.60 while maintaining its ‘market perform’ call.

Meanwhile, RHB Research believed that the group’s valuation remains fair at this juncture as it is trading at 9.3-times FY25F price earnings ratio (PER) which is at the high end of its peer’s range of 6 to 10-times.

However, it believed its share price movement will be supported b y a robust circa seven per cent FY24F dividend yield.

It maintained its ‘neutral’ call with a slightly lower target price of RM3.60 from RM3.65.