- We maintain HOLD on Ta Ann, with a downward revised fair value of RM3.69/share (vs. RM3.98/share previously), based on 13x FY15F PE (vs. 14x previously).

- Ta Ann posted a 2Q15 core net profit of RM32.8mil (+26%QoQ, +11% YoY), bringing the total for 1H15 to RM59mil (flat vs. 2Q14’s RM58.7mil) – accounting for 56% and 57% of our and consensus estimates, respectively.

- As expected, apart from the 10 sen/share dividend for 1Q15, no additional interim dividend was declared. We expect another 5 sen/share payout for the rest of the year.

- Though the result beat expectations with potential earnings upside ahead in 2H15, we remain cautious in view of the current low CPO prices.

- The group achieved 1H15 CPO sales at an average of only RM2,153/tonne vs. our full-year assumption of RM2,400/tonne.

- Additionally, Ta Ann may not be able to achieve our FFB target of 680,000 tonnes for FY15, after having only achieved 38% of that or 260,102 tonnes.

- Granted Ta Ann will benefit from the weakening ringgit. It has benefited from an upward trend in log prices following the shrinking of supply from Sarawak.

- Log prices remained strong, with the 1H ASP at US$275/cu m vs. our assumption of US$220/cu m.

- Its Tasmanian operations appear to have turned around. Encouragingly, its plywood manufacturing operations posted a 1H15 PBT of RM17.7mil vs. RM8.7mil a year earlier.

- Nonetheless, we believe Ta Ann Tasmania may have to contend with start-up costs for its plywood mill there that just started operations ~3 weeks ago.

- We maintain our earnings forecasts for Ta Ann.

- Additionally, we expect the MACC to wrap up its investigations soon into illegal logging activities in Sarawak. Recall that in May, Ta Ann announced that it and two subsidiaries were cooperating with the MACC’s probe.

- We understand that the probe was likely to be completed within three months. Ta Ann has said its policy is to use only legal logs and its processes and inputs are legally verified.

Source: AmeSecurities Research - 1 Sep 2015