TAANN (5012) : Ta Ann - Lifted by strong log earnings
Target RM4.10 (Stock Rating: HOLD)
Ta Ann’s 9M14 core net profit beat expectations at 97% of our and 90% of consensus full-year forecasts due to stronger-than-expected logging earnings. A 10 sen DPS was declared, bringing YTD DPS to 20 sen. This is higher than our projected full-year DPS of 16 sen. We increase our FY14-16 EPS by 3-15% to account for higher log production volumes and increase our SOP-based target price to RM4.10. We also raise our FY14 DPS projection to 22 sen on assumption that 50% of its 4Q earnings will be distributed as dividend, in line with the last year’s payout ratio. However, we maintain our Hold call on the stock as we feel that it is fairly valued at current level. Switch to First Resources for higher upside.
Key results highlights
Ta Ann reported a net profit of RM44m in 3Q14. This includes the RM17m gain from the second compensation payment by the Australian Government for its Tasmanian operation. Excluding the one-off gain, Ta Ann’s core net profit fell 12% yoy due to weaker plantation earnings. Plantation pretax profit dropped 9% to RM27m as higher FFB production (+6% yoy) was insufficient to offset the earnings impact of lower CPO selling prices (-9% yoy). Timber core pretax profit rose 4% to RM18m on the back of stronger logging earnings. Its log production volume rose 23% in 3Q while selling prices rose 3%. Its plywood division turned in a loss of RM5m as a result of softening plywood prices.
Higher log production to stay?
Ta Ann’s log production grew 29% yoy to 437,154m³ in 10M14. It attributed the rise to good weather at its concession sites and adjustments to its logging programme. It also expects the full-year production to grow 28% to 520,000m³ and be sustained at this level in the future years. Our forecast is more conservative as we expect the weather to normalise, affecting its logging operations. We project a 9% decline in its log production next year. Every 1% increase in log production will increase our 2015 EPS by 0.7%
Plywood losses may widen in the coming quarter
Based on the latest trade statistics, prices of Malaysian plywood in Japan averaged at US$579 per m³ in Sep 14, 3% lower than the average price achieved in 3Q14. We expect plywood prices to persist at Sep level in 4Q given the subdued outlook on Japan’s economy and its demand for tropical plywood. This should result in bigger plywood losses for the group in the next quarter.
Source: CIMB Daybreak - 26 November 2014
Target RM4.10 (Stock Rating: HOLD)
Ta Ann’s 9M14 core net profit beat expectations at 97% of our and 90% of consensus full-year forecasts due to stronger-than-expected logging earnings. A 10 sen DPS was declared, bringing YTD DPS to 20 sen. This is higher than our projected full-year DPS of 16 sen. We increase our FY14-16 EPS by 3-15% to account for higher log production volumes and increase our SOP-based target price to RM4.10. We also raise our FY14 DPS projection to 22 sen on assumption that 50% of its 4Q earnings will be distributed as dividend, in line with the last year’s payout ratio. However, we maintain our Hold call on the stock as we feel that it is fairly valued at current level. Switch to First Resources for higher upside.
Key results highlights
Ta Ann reported a net profit of RM44m in 3Q14. This includes the RM17m gain from the second compensation payment by the Australian Government for its Tasmanian operation. Excluding the one-off gain, Ta Ann’s core net profit fell 12% yoy due to weaker plantation earnings. Plantation pretax profit dropped 9% to RM27m as higher FFB production (+6% yoy) was insufficient to offset the earnings impact of lower CPO selling prices (-9% yoy). Timber core pretax profit rose 4% to RM18m on the back of stronger logging earnings. Its log production volume rose 23% in 3Q while selling prices rose 3%. Its plywood division turned in a loss of RM5m as a result of softening plywood prices.
Higher log production to stay?
Ta Ann’s log production grew 29% yoy to 437,154m³ in 10M14. It attributed the rise to good weather at its concession sites and adjustments to its logging programme. It also expects the full-year production to grow 28% to 520,000m³ and be sustained at this level in the future years. Our forecast is more conservative as we expect the weather to normalise, affecting its logging operations. We project a 9% decline in its log production next year. Every 1% increase in log production will increase our 2015 EPS by 0.7%
Plywood losses may widen in the coming quarter
Based on the latest trade statistics, prices of Malaysian plywood in Japan averaged at US$579 per m³ in Sep 14, 3% lower than the average price achieved in 3Q14. We expect plywood prices to persist at Sep level in 4Q given the subdued outlook on Japan’s economy and its demand for tropical plywood. This should result in bigger plywood losses for the group in the next quarter.
Source: CIMB Daybreak - 26 November 2014
