The sharp 58.0% y-o-y drop in TAH’s 1QFY13 earnings to MYR4.0m was attributed to lower plywood and CPO prices. We expect its performance for the rest of the year to remain subdued, although the increasing maturity of its oil palm estates and potentially better CPO prices may lift profits in FY14. Maintain NEUTRAL, with the stock’s FV at MYR3.28.

- Below expectations. Ta Ann (TAH) posted revenue of MYR150.3m (-8.7% y-o-y, 28.4% q-o-q) for 1QFY13, despite an improvement in y-o-y timber and palm oil sales volume as crude palm oil (CPO) and plywood prices sagged  29.9% and 11.9% respectively. as a result, core earnings fell to MYR4.0m (-58.0% y-o-y, -69.9% q-o-q), mostly attributed to weakness in the oil palm segment. The implementation of minimum wage also led to increasing costs across all segments. TAH’s quarterly earnings accounted for 5.5% and 4.7% of our and consensus estimates. 

- Plywood division incurs losses. TAH’s timber operations registered a lower PBT of MYR1.1m (-36.0% y-o-y), largely due to strength in its logs division, whose products fetched higher prices. Meanwhile, the company’s plywood division continues to languish in the red amidst a 11.9% y-o-y drop in selling prices, as well as persistently high production and shipping costs at its Tasmanian plywood factory. The MYR13.2m asset impairment booked in 4QFY12 for its Tasmanian plant may end up being an annual affair should the plant continue to register losses.

- Weak plantation showing. Meanwhile, PBT at TAH’s oil palm division sank to MYR5.0m (-64.2% y-o-y, -75.1% q-o-q) despite a 15.8% y-o-y growth in fresh fruit bunches (FFB) production, as realized CPO prices sagged 29.9% y-o-y. CPO prices need to exceed MYR3,000 per tonne for a young mature estate to break even. As 65.2% of TAH’s mature trees are currently about four to seven years old, its breakeven price needs to be higher given its estates’ inherently lower yields.

- Maintain NEUTRAL. We cut our FY13 and FY14 earnings forecasts by 50.7% and 34.3% respectively as we lower our CPO price assumptions to MYR2,400 and MYR2,600 per tonne for FY13 and FY14. We now value TAH at a MYR3.28 FV, based on 16.0x FY14 plantation earnings and 12.0x FY14 timber profits. The growing maturity of its young estates as well as potentially higher CPO prices will help lift earnings in FY14.   

Source: RHB