Ta  Ann’s  FY13  core  net  profit  came  in  below  our  and  consensus estimates,  due  to  lower  selling  prices  of  its  Tasmanian  Ecowood following some stock-clearing activities in Japan in 4Q13, which have since  been  completed.  We  continue  to  like  Ta  Ann  given  rising contribution from the plantation division amid  improving prospects for the timber division. Maintain BUY, with a SOP-based FV of MYR4.88.

• Below expectations. Ta Ann’s FY13 core net profit of MYR58.4m came in  below  our  and  consensus  estimates,  at  90-92%  of  FY13  forecasts. This  was  due  to  larger-than-expected  losses  at  its  plywood  division caused  by  lower  selling  prices  of  its  Tasmanian  Ecowood,  which  fell 11.5%  q-o-q  in  4Q13  and  8.8%  y-o-y  in  FY13,  following  some  stockclearing  activities  in  Japan  in  4Q13.  We  understand  that  the  inventory clearing exercise has been completed and stock levels have returned to normal  in  1Q14.  Ta  Ann  recorded  a  net  EI  gain  of  MYR2.2m  in  4Q13 (total  FY13 net EI gain:  MYR33m),  arising  from a  +MYR31m writeback on  property, plant and equipment  (PPE)  impairment and tax provisions, offset  by  a  MYR21m  inventory  writedown  and  a  MYR7.7m  unrealised loss on forex.
• FY13  core  net profit  tumbled  30%  y-o-y  on  the  back  of a  3% dip  in revenue. Revenue in the timber division fell due to lower log volume and lower  plywood  prices,  which  were  offset  by  higher  log  prices  and plywood  volume.  Meanwhile,  PBT  margins  improved  to  14.8%  (from 10.1% in FY12) due to higher profit in the log division and lower losses in the plywood division. The plantation division’s  FY13  PBT dived  33% as prices  fell  21%,  although  production  volume  rose  by  5%.  Plantations contributed 55% to PBT in FY13.
• We trim our FY14 earnings forecasts slightly  by 3% after updating the FY13 numbers. We also introduce our FY15 earnings estimate.
• Maintain BUY.  Post-earnings revision, we  reduce  our SOP-based FV to MYR4.88  (from MYR4.97),  based  on  an  unchanged  CY14 target P/E of 16x for its plantation division and 12x for its timber division. We continue to see value in Ta Ann on the back of: i)  the timber industry’s  gradually improving  prospects  amid  increasing  economic  activities  in  Japan  and rising timber prices,  ii)  a weakening MYR, which is positive for its timber revenue,  which  are  denominated  in  USD  for  exports,  iii)  growing  fresh fruit bunches (FFB) production, and iv) rising CPO price trend.

Financial Exhibits

SWOT Analysis

Company Profile
Ta Ann is mainly involved in the manufacture and sale of plywood, trading of timber logs and cultivation of oil palms.

Recommendation Chart

Source: RHB