Period  2Q13/1H13

Actual vs. Expectations  The 1H13 core net profit* of RM6.5m was below expectations as it made up only 11% of both consensus and our expectations of RM57.0m. We believe this could be caused by lower CPO and plywood prices and high cost issue in both the plantation and plywood divisions.

Dividends  No dividend was announced versus our expectation of 2.0 sen. Note that 5.0 sen was paid in 2Q12. We believe it may be conserving cash due to the current challenging environment in both plantation and timber divisions.

Key Results Highlights  YoY, the 1H13 core net profit tumbled 74% to RM6.5m due to lower CPO prices (-31% to RM2197/mt), lower plywood prices (-5% to USD515/m3) and higher operating cost.

 QoQ, the 2Q13 core net profit declined 34% to RM2.6m as the Group has been paring down its high-cost inventories in Tasmania, Australia at below-cost prices.

Outlook  Current low CPO prices and high cost issue may continue to pressure Ta Ann.

Change to Forecasts  We have reduced our FY13E earnings by 16% to RM48m after assuming lower CPO prices of RM2400/mt (from RM2500/mt). However, we have maintained our FY14E earnings of RM103m as we keep our forecast CPO price of RM2700 unchanged.

Rating   Maintain UNDERPERFORM

Valuation  Maintain our TP of RM3.55 based on an unchanged Fwd. PER of 12.8x on CY14E EPS of 27.7 sen.

Risks  Better than expected CPO prices.

 Better than expected timber product prices.

 Lower than expected cost increase.

Source: Kenanga