- We maintain HOLD on Ta Ann with an upward revised fair value of RM4.27/share based on a higher PE of 16x (vs. 15x previously) against an FY14F core EPS of 26.7 sen.

- Ta Ann posted a 1QFY14 core net profit of RM29.0mil (+619% YoY, +55% QoQ), which is in line with expectations and representing 26% of consensus’ RM113.6mil, but ahead of our estimate of RM98mil. It declared a single-tier interim dividend of 10 sen/share (1QFY13: nil), to be paid on 27 June 2014. This equals our dividend forecast for FY14F.

- While we maintain our forecast numbers, our higher valuation is to reflect the better performance of the plywood division, particularly at its Tasmanian operations.

- The plywood division posted its first quarterly core pre-tax profit in three years, at RM4.1mil – attributable to cost containment and the introduction of a new product in eucalyptus coated plywood (E CCPP) 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 ~RM1.3mil.

- For now, we maintain our net loss estimate for the plywood division at ~RM11mil, including an estimate gain of ~RM17mil 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$7.5mil (RM22.5mil). The mill would have an annual capacity of 24,000 cu m of plywood, which would be intended for the Australian market.

- In 1QFY14, log exports outperformed our expectations, raking in a PBT of RM23.5mil, accounting for ~47% of our estimate, on the back of higher prices and strong volume.

- The oil palm division performed within our expectations, with FFB output rising by 11% YoY but down by 23% QoQ due to seasonal factors. The CPO volume rose by 25% YoY (-21% QoQ) to 21,941 tonnes, representing 21% of our full-year estimate.

- Oil palm PBT saw a blip, on the back of “extraordinary manuring,” but this is also expected to normalise. CPO average selling price was at RM2,499/tonne (+14% YoY, +5% QoQ), ~2% above our estimate of RM2,450/tonne.

- We maintain our HOLD call. We are less optimistic about Ta Ann’s growth compared to Jaya Tiasa’s due to its limited wood supply and smaller land bank for its oil palm division, other than the uncertainties at Tasmania.

Source: AmeSecurities