Journey to Wealth
Ta Ann Holdings - OUTPERFORM - 25 May 2012
Period 1Q12
Actual vs. Expectations
Results were below expectations due to weaker timber segment. 1Q12 earnings of RM11m only made up 6% each of ours and the consensus' forecasts of RM179m and RM177m, respectively.
The 1Q12 export log price of US$203 per m3 was 15% below our estimate of US$240 per m3. The blended plywood price of US$563 per m3 was also 9% below our estimate of US$618 per m3.
Dividends No dividend was announced in 1Q12, which is in line with its historical practice.
Key highlights
QoQ, the earnings dropped by 59%. The main culprit was timber division, which barely broke even this quarter, followed by seasonally lower FFB production in 1Q12 at 89,122 mt (-16% QoQ) and higher fertilizer cost.
YoY, the earnings (-57%) were bogged down by lower CPO prices realised at RM3,138 per mt (-13% YoY) and the absence of earnings from the timber division.
Outlook Still positive on the plantation division as FY12E FFB should grow 30% YoY to 596,000 mt.
Less optimistic on timber as the division is expected to barely break even in FY12E.
Change to Forecasts
We have revised down our FY12-13E net profit by 21%-17% to RM141m-RM160m after cutting timber product prices by 6%-8% and increasing our FFB cost per MT by 9% due to higher fertiliser prices.
Rating OUTPERFORM
We view the temporary hiccup in the timber division as an opportunity to accumulate Ta Ann.
The plantation division outlook still looks good asits young age profile of 5.5 years old means a strong 3-year FFB CAGR of 21% is achievable.
The 1-for-5 bonus issue (ex-date: 14-Jun-2012) should keep the share price supported.
Valuation We have lowered our target price by 21% to RM6.10 (previously RM7.75). Our valuation is based on unchanged 13.4x Fwd. PER on lowered FY12 EPS of 45.7 sen (previously 57.9 sen).
Risks Sustained drop in CPO prices.
Sustained drop in export log and plywood prices.
Source: Kenanga
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