- We maintain HOLD on Ta Ann Holdings Bhd with a higher fair value of RM3.72/share (vs. RM3.40/share previously) based on a PE of 15x (vs. 13x previously) against an FY14F core EPS of 24.8 sen.

- Ta Ann trails the plantation stocks. Its PE valuation of 15x is two notches below that of the plantation stocks’ simple average PE of ~17x for FY14F. The implied PE for its oil palm business is ~17x.

- Ta Ann’s oil palm activities are expected to account for 84% and 96% of our FY14F and FY15F earnings, respectively. Our CPO price assumptions are at RM2,400/tonne for FY13F and at RM2,500/tonne each for FY14F and FY15F.

- However, we have cut our FFB production assumption for FY13F by 7% to 587,574 tonnes (based on a yield of 19.5 tonnes/mature ha) from 629,457 tonnes previously – to be more in-line with the production of only 103,231 tonnes in 1QFY13. The annual volume growth over the next two years is at 20% and 16%.

- We have incorporated exceptional gains of RM76mil and RM7mil for FY13F and FY14F, respectively, stemming from the compensation of A$28.6mil (inclusive of GST) from the Australian government for the partial surrender of wood entitlements under contracts with Forestry Tasmania. Ta Ann is expected to receive the first tranche of A$22.33mil in the current quarter and the second tranche of A$6.27mil by 1 September 2014.

- Pursuant to the new wood supply arrangement and potentially clearer market directions for its Tasmanian operations, we have cut its manufacturing division’s pre-EI losses by 25%-29% to between –RM36mil and –RM40mil for FY13F-FY15F. Potential upsides could come from a restructured operation in Tasmania.

- We maintain our plywood ASP assumptions at RM512/cu m for FY13F and at RM500/cu m for FY14F and FY15F, while our log ASP assumptions are raised by 4% and 2% to RM208/cu m and ~RM204/cu m, respectively.

- Plywood prices remain weak at ~US$500/cu m, but log average export prices had jumped to a high of US$271/cu m in May. The average was at ~US$261/cu m in June and up till May was at ~US$221/cu m. About half of its log production in FY12 was derived from the meranti wood, the export price of which has reportedly soared to ~UA$280/cu m.

- It remains to be seen if the current high log prices could be sustained for the rest of the year. Like Jaya Tiasa, Ta Ann’s prospects are underpinned by CPO prices. Furthermore, Ta Ann continues to be hampered by losses in Tasmania.

Source: AmeSecurities