- We upgrade Ta Ann to a BUY, with a higher fair value of RM4.55/share, based on 16x PE against an upward revised core EPS of 28.4 sen.

- Effectively, we raised FY14F core earnings by 7% to RM106mil on the strong performance in the logs division. We cut the core losses at the plywood division to ~RM5.8mil (PBT) from -RM32mil projected previously.

- We have also cut our FY14F palm oil PAT by over 42% after lowering both the CPO price assumption (from RM2,450/tonne to RM2,250/tonne) and projected FFB yield (see Exhibit 5 for the revisions to our assumptions).

- Its 3QFY14 results beat expectations. It posted a core net profit of RM26.4mil (-11% QoQ, -21% YoY), bringing the 9MFY14 earnings to RM85mil (+112% YoY) – accounting for 85% and 86% of our and consensus forecasts.

- It declared a surprise 2nd 10 sen/share interim dividend, with the ex-date on 8 Dec and payable on 29 Dec. This brings the total dividend YTD to 20 sen/share.

- For 3Q, logs saw strong volume and prices amid firm demand from India, while plywood incurred a core loss of ~RM4.8mil. Included in plywood’s PBT of RM20.9mil for 9MFY14 is the 2nd tranche compensation from the Australian government of RM17mil received in 3Q.

- Management expects log prices at US$245-US$255/cu m for 4Q. We now expect log prices at US$220/cu m for FY15F-FY16F vs. US$210/cu m previously.

- Plywood prices remain subdued at ~US$520/cu m, while breakeven is at $535-US$545/cu m. We expect losses to narrow to ~RM15mil (PBT) for each of FY15F and FY16F vs. RM34mil-RM37mil projected previously. This accounts for the sale of higher priced products to the Australian market.

- Palm oil’s earnings improved sequentially, with PBT at RM27mil (+101% QoQ) on better FFB yield but were down 9% YoY amid much higher external FFB purchases. We expect external purchases to be lower as output increases over the next two years, with a corresponding decline in the sales to external parties. Management expects 4Q output to show a seasonal decline – possibly at 8%-12% below 3Q levels, going by historical data.

- BUY for sustained log performance, narrower plywood losses, and higher FFB output in FY15F, as well higher dividends as capex slows. We raise dividend by 5 sen/share for FY15F, and by 10 sen/share for FY16F. We assume no more dividend payout for 4Q.

Source: AmeSecurities