With  Myanmar  banning  log  exports  from  1  April  2014  onwards,  we expect  tropical  log  prices  to  begin  increasing  again  from  2H2014,  after any  existing  log  inventory  held  at  importing  countries  declines.  We raise  our  FY14-15  earnings  forecasts  for  Ta  Ann  by  2.5-4%,  and  our SOP-based FV to MYR5.00 (from MYR4.88). Maintain BUY, as we expect higher CPO and log prices to boost earnings.

Outlook  remains upbeat. We  continue  to  be  positive  on  the  prospects of  the  timber  sector  due  to  upcoming  log  export  ban  in  Myanmar  and relatively stable demand from India and Japan. The rise in log prices, the softening  MYR/USD  rate  (which  will  benefit  its  export-derived  revenue) and rising CPO prices will drive earnings for the sector.

Myanmar’s log export ban to have significant impact.  Myanmar’s ban  on  all  log  exports  will  take  effect  from  1  April  2014,  as  its administration  makes  an  effort  to  eradicate  wood  log  smuggling  and conserve  forests.  Myanmar  is  the  fifth-largest  tropical  log  producer  and the third-biggest exporter in Asia-Pacific. In comparison, Malaysia is the third-largest  producer  and  the  largest  exporter  of  tropical  logs  in  the region. With the ban in place, we expect tropical log prices to start rising again  from  2H2014,  after  any  existing  log  inventory  held  at  importing countries decreases.  

Increasing  forecasts.  We  upgrade  our  numbers  after  imputing  5-7% higher log price assumptions for 2014 and 2015 to USD250-270 per cu m (from USD240-260/cu m), as well as higher MYR/USD exchange rate assumptions  of  MYR3.20/USD  for  CY14  (from  MYR3.15)  and MYR3.15/USD  for  CY15  (from  MYR3.10),  based  on  our  latest  house view. As such, we raise our FY14-15 earnings forecasts for the company by 2.5-4%.  

Maintain  BUY.  With  stronger  earnings  from  its  plantation  division,  a stable-to-improving outlook for the timber industry, as well as the added benefit of the recent softening of the MYR against the USD, we maintain our BUY rating on Ta Ann. We also nudge up our FV to MYR5.00 (from MYR4.88),  based  on  unchanged  target  P/Es  of  12.0x  CY14  for  the timber division and 16.0x CY14 for the plantation unit.

Financial Exhibits

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