TAANN – another round to make money?

[i4value]

I bought TAANN in mid-2019 when it was trading around RM 2.25 per share and then sold it off in early 2020 when it went up to around RM 3.40 per share. I went in on the basis of its fundamental and sold when I thought the market had overpriced it.

The ROE over the past few years have been improving. While the share price did have an initial spike, it is currently around the 2020 peak share price level. There seems to be a mismatch between performance and share price



When you look at the long-term performance of TAANN as represented by the ROE, you can see that it did better than KLK – one of the reference Bursa plantation companies. This quick and dirty comparison points to TAANN being fundamentally sound.

Is the mismatch between the ROE and market price meant that there another round to make money from a fundamental investing perspective?

[i4value]

Ta Ann is a Bursa Malaysia timber cum plantation company.  Since Oct last year, its price had gone from about RM 3.30 per share to as high as RM 4.30 per share. Today it is down to RM 3.80 per share. Does this represent an investment opportunity?

I would consider Ta Ann a wonderful company in the Buffett sense. There were topline and bottom-line growths. It had diversified into the plantation sector delivered a big part of the growth.

The are signs of improving operating efficiencies as exemplified by the gross profitability, asset turnover, and leverage. It is financially sound and had been able to create shareholders’ value.



My valuation as shown in the Chart shows that there is more than 30% margin of safety. Surely Ta Ann cannot be a value trap.

[weijian]

hi i4value,

I am pretty sure that Buffet will not consider companies dealing with commodities like timber and oil palm as "wonderful".

Thanks to George Bush, palm oil is used as biofuel. So when fuel prices rise, palm oil prices rise (and vice versa). Unfortunately there are many substitutes for biofuel and palm oil is just one of them. If palm oil gets too expensive on an individual basis, it can be readily substituted by other plant oils. Just like how Msia protects its palm oil, Europe will protect its own rapeseed oil.

Finally, I was puzzled why Ta Ann would be able to cut down trees in Borneo. After a quick check, it seems to be related to white rajah, which explains why. I believe one could easily soar or crash with politically-sensitive Msian stocks.

[i4value]

I would think of "wonderful" as a company with good and growing returns, a long growth runway and low Reinvestment rate. The sector is probably an incidental point

[weijian]

I would think of "wonderful" as a company with good and growing returns, a long growth runway and low Reinvestment rate.  The sector is probably an incidental point

hi i4value,

Since you had mentioned "Buffet sense", I thought it had to be related to his criteria. Anyways, "good/growing returns/long growth runway/low re-investment rate" sounds really cliche. I wonder if the sector is a key criteria for such wonderful characteristics to all come together, or rather it is incidental as you mentioned.

[i4value]

It is also a challenge trying to define a "wonderful" company. I look at the numbers as the starting point. Then I guess they should be backed up by the moat and other qualitative measures. In the case of timber cum plantation companies, I would consider landbank as a moat.