- We maintain HOLD on Ta Ann Holdings Bhd with an unchanged fair value of RM3.72/share based on a PE of 15x against an FY14F core EPS of 24.8 sen.

- Ta Ann posted a 1HFY13 core net profit of RM6.7mil (after adding back tax on compensation) – representing 20% of our previous estimate of RM33.5mil and only 12% of consensus (Bloomberg).

- However, we expect it to show improvements for the remainder of the fiscal year, on the back of better CPO prices. We expect a core net profit of RM40.6mil (excluding impact of EIs) for FY13F.

- The company posted a net profit of RM24.2mil (including EIs) in 2QFY13, mainly stemming from the recognition of the first tranche of the compensation from the Australian government of RM62mil (before tax provision of RM9.52mil).

- It will receive the 2nd tranche of A$6.27mil by 1 Sept 2014 – for the partial surrender of wood entitlements under contracts with Forestry Tasmania. It commits the company to remain operating in Tasmania for at least five more years.

- Pursuant to the recognition of the compensation, the company made a PPE impairment loss for 2FY13 in relation to the Tasmania operations amounting to RM31mil.

- Excluding the EIs, the plywood division’s pre-tax loss widened to RM12.7mil in 2QFY13 from RM7.3mil in 1QFY13, for a total loss of RM20.1mil for 1HFY13 – in-line with our full-year loss estimate of RM42mil ex-EIs.

- The losses were mitigated by an improved performance of the log division, whereby PAT rose 6% YoY and 50% QoQ to RM8.9mil in 1HFY13 on the back of a strong export ASP of US$255/cu m in 2QFY13 (+19.7% YoY, +22% QoQ).

- It may be tough for the 1HFY13 log export ASP of US$232/cu m (+11% YoY) to be sustained. However, we have increased our export ASP assumption by 5% to US$220/cu m for FY13F, but maintain it at US$210/cu m for each of FY14F and FY15F.

- We maintain our plywood ASP at US$512/cu m for FY13F and at US510/cu m for FY14F and FY15F, vs. US$515/cu m in 1HFY13.

- Ta Ann’s prospects remain hinged on CPO prices and on its restructuring efforts to curb losses in Tasmania.

Source: AmeSecurities