Given our recent timber sector upgrade, we are lifting our forecasts and target price and upgrading our recommendation on Ta Ann to BUY (from Neutral). Although the benefit from an improving timber industry outlook would be somewhat diluted by weaker contributions from its plantation division, Ta Ann’s valuations are relatively undemanding, trading at the low end of its historical P/E range of 12x-16x.
- Upgrades timber sector to OVERWEIGHT. In our 2 Aug report, we upgraded the timber sector to an OVERWEIGHT (from Neutral). We are now more positive on the sector’s prospects given a strong recovery in log prices and Japan’s improving economic activities, which translate into rising plywood imports. Although plywood prices have yet to enjoy a similar re-rating as logs, we believe such a move is on its way, given the general 4-6 months’ lag to pass on higher log costs.
- Log prices already up 20-30% y-o-y; plywood prices should re-rate soon. Malaysian tropical log prices have been rising steadily since April 2013, due to a shortage of logs in the global market. Currently, Malaysian log prices are about USD250-270/cu m, up 20-30% y-o-y. We expect log prices to hold at current levels for the rest of the year and for 2014. This means that average log prices would be about USD230-250/cu m in CY13, rising by 8-9% to USD250-270/cu m in CY14. While plywood prices have not moved up as significantly yet (only up 3-5% y-o-y and q-o-q), we believe this is on the way, given the general 4-6 months’ lag to pass on higher log costs. We are projecting average plywood prices to rise by 3-5% in CY13 and by a further 4-6% in CY14.
- Upgrading forecasts, target price and recommendation. We are lifting our forecasts for Ta Ann by 28% for FY13 and by 40% for FY14. Besides raising our log and plywood price assumptions, we are also incorporating a weaker USD/MYR exchange rate for FY13 of MYR3.10/USD (from MYR3.00/USD), while leaving our MYR3.00/USD assumption for CY14 unchanged, which would bode well for exporters like Ta Ann. Post-earnings forecasts, we raise our SOP-based fair value (16x CY14 for plantations division and 12x CY14 for timber division) to MYR4.37 (from MYR3.28) and upgrade our recommendation to BUY (from Neutral).
Source: RHB
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Created by kiasutrader | Jun 14, 2016
Created by kiasutrader | May 05, 2016