With Ta Ann Holdings Bhd (Ta Ann) seeing its strongest timber earnings since 2007, analysts say this will offset any losses from its Tasmanian operations. Source: The Borneo Post
Ta Ann’s first quarter for financial year 2014 (1QFY14) net profit surged 612% year on year (y-oy) lifted by the better performance of timber and plantations.
Timber’s pretax profit jumped to RM28 mlion in 1Q14 from RM1 million in 1Q13, thanks to higher log and plywood prices, which rose 28% and 14% y-o-y, respectively.
“While we maintain our forecast numbers, our higher valuation is to reflect the better performance of the plywood division, particularly at its Tasmanian operations,” said the AmResearch Sdn Bhd (AmResearch) report.
“The plywood division posted its first quarterly core pre-tax profit in three years, at RM4.1 million – attributable to cost containment and the introduction of a new product in eucalyptus coated plywood that garners better margins than the non-coated ones.
“Backed by higher sales volume and prices, the local plywood segment’s profitability improved. We estimate that Tasmanian plywood’s loss has narrowed to about RM1.3 million,” AmResearch added.
“For now, we maintain our net loss estimate for the plywood division at RM11 million, including an estimate gain of RM17 million from the second tranche of the compensation from the Australian government which is due in 2H14.”
Ta Ann expects to set up its plywood mill adjacent to its veneer plant in Tasmania by year-end, for which it would receive a separate government grant of A$7.5 million (about RM22.5 million).
The mill would have an annual capacity of 24,000 cubic metres of plywood, which would be intended for the Australian market.
With timber products production and prices potentially remaining volatile, the research team behind Maybank INvestment Bank Bhd (Maybank Research) said high logs export price and low plywood cost of production per unit could normalise in the subsequent quarters.
“On the other hand, we also expect plantation earnings to play catch up in the next few quarters as its fresh fruit bunch (FFB) production accelerates. Therefore, we maintain our earnings forecasts for now,” it said.