Ta Ann CEO Datuk KH Wong met analysts and fund at a Q&A session last Friday. The key takeaways from it are as follows:-

1. The group is optimistic about turning around its Tasmania operations with the completion of its plywood mill there by year-end. It is confident of securing buyers in Australia for a special-grade plywood, which fetches premium prices. The ex-factory prices are at A$1,000-A$1,100/cu m (USD860-USD946/cu m), while cost of production is at A$800-A$900/cu m (USD688-USD774/cu m), giving an operating margin of 18%-19%. It has been trial testing the product in Sarawak, and has been selling 700-1,000 cu m/month to Australia. Based on the mill’s capacity of only 24,000 cu m per annum, it would still need to ship up to 55,000 cu m of veneer back to Sibu. On Japan, plywood demand remains weak, but is expected to improve in the lead-up to the Tokyo Olympics 2020. It has invested A$75mil so far in Tasmania.

2. It has asked the state to permit the harvesting of logs with a diameter of 30cm and above, vs. 45cm now. It has been able to increase log production since early this year with the implementation of more efficient harvesting methods. Log exports volume rose by 37% in 1HFY14. Log prices continue to be strong, given strong demand from India and Myanmar’s ban on export. We understand log prices are at ~US$250/cu m. Coupled with harvest from reforested areas, it should be able to maintain its annual log production at 500,000 cu m per annum, assuming the extension of its concessions by 60 years. It has four licences that expire between 2015 and 2017. It will apply for the Sustainable Forest Management certification, as required by the state government.

3. Its oil palm division has locked in fertiliser requirements at RM925/tonne for 2014 and 2015, vs. the current price of RM1,200-RM1,300/tonne, and for the following year, it has contracted half of the requirements at RM1,120/tonne. The full dosage would be applied for 2014 and 2015. Its CPO production cost is at ~RM1,600/tonne. However, note that as of 1HFY14, about a third of its FFB requirements were purchased from external source.

4. It will complete planting on the remaining 3,000ha-4,000ha of its oil palm by year-end. In view of lower capex ahead, it may consider giving better dividends – though no dividend policy has been set. For the last quarter, it may propose another payout, apart from the 10 sen/share already declared for the year.

We maintain our numbers and HOLD call for now.

Source: AmeSecurities