Period  2Q14/1H14

Actual vs. Expectations Ta Ann (TAANN)’s 1H14 core net profit* (CNP) of RM58m is within consensus expectation as it makes up 55% of consensus full-year FY14 forecast of RM106m. However, it is higher than ours as it accounts for 61% of our estimate of RM95m.

 We have underestimated the strength of plywood prices which has strengthened more than expected at +4% YoY to USD538/m3 in 1H14 due to uptrend seen in infrastructure and construction projects in Japan.

Dividends  None as expected.

Key Results Highlights YoY, 1H14 CNP increased 792% to RM58m as CPO prices improved 14% to RM2510/MT. Timber division also did well with export logs prices higher by 8% YoY to USD251/m3 while plywood prices added 4% YoY to USD538/m3.

 QoQ, 2Q14 CNP was flattish (+1% to RM29m) due to flattish trend in CPO prices (+1% to RM2517/MT). Timber products experienced the same flattish trend with export logs’ prices sidelining QoQ at USD251/m3 while plywood prices added 1% QoQ to USD537/m3.

Outlook  Management expect comparable 2H14 results against 1H14 as timber product prices are expected to remain strong. However, it cautioned that earnings contribution from plantation division will very much depend on CPO prices movement.

 As for the potential limit of foreign ownership in Indonesia, TAANN is not affected as all its plantation estates are in Sarawak.

Change to Forecasts FY14E-FY15E core earnings are increased by 1% each to RM96m-RM100m. We have assumed higher plywood prices of USD534/m3 for both years (previously USD530/m3).

Rating Maintain MARKET PERFORM Near term catalyst is minimal as the better-than expected plywood prices impact is very much neutralised by current low CPO prices at below RM2100/MT.

Valuation  Increase our TP slightly to RM4.55 (previously RM4.50) based on unchanged Fwd. PER of 16.9x to higher FY15E EPS of 26.9 sen (from 26.6 sen). Our Fwd. PER valuation of 16.9x is based on Mean valuation.

Risks to Our Call Lower-than-expected CPO prices.

 Lower-than-expected timber product prices.

 Higher-than-expected cost of production.

Source: Kenanga