Ta Ann’s 1HFY14 results were within expectations. While we continue to see stronger prices for logs and stable  prices for plywood, earnings from  the plantation division could be at risk. We  will be  reviewing  our CPO  price  assumptions  post-results  season.  Every  MYR100/tonne change  in  CPO  price  could  affect  Ta  Ann’s  earnings  by  7-9%  per annum. We maintain our BUY rating and MYR5.40 FV for now. 

In  line.  Ta  Ann’s  1HFY14  core  net  profit  was  in  line  with  our  and consensus estimates, at 45-50% of FY14 forecasts. 

Core net profit soars in 1HFY14. Ta Ann’s 1HFY14 core net profit grew more than six-fold y-o-y on the back of a 31% rise in revenue. Higher log (+45%)  and  plywood  (+14%)  sales  volumes and  higher  log  (+8%)  and plywood  (+5%)  prices,  offset  by  lower  plywood  sales  volumes  (-5%). Meanwhile,  profit  before  tax  (PBT)  margin  improved  to  19.1%  (from 13.5%  in  1HFY13),  due  to  higher  profit  from  the  log  division  and  a turnaround  to  profitability  in  the  plywood  division.  The  plantation division’s  1HFY14  PBT  more  than  doubled  y-o-y,  as  CPO  prices  rose 14%  and  fresh  fruit  bunches  (FFB)  volume  improved  by  10%,  on  the back of rising mature hectarage.

No changes to our forecasts for now. Average log and plywood prices are  on  track  to  meet  our  price  projections  of  USD250  and  USD547, respectively,  for  FY14.  As  we  will  be  reviewing  our  CPO  price assumptions  post-results  season,  we  maintain  our  assumptions  of MYR2,700/tonne for  FY14  and  MYR2,900/tonne  for  FY15  for  now. We highlight  that  every  MYR100/tonne  change  in  CPO  price  could  impact the company’s net profit by 7-9% per annum. 

Maintain BUY.  We maintain our  SOP-based FV of  MYR5.40, based on an unchanged 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)  Ta  Ann’s growing  FFB  production,  and  iii)  its  inexpensive  valuations.  Maintain BUY. 

Source: RHB