Stock Name: TAANN
Company Name: TA ANN HOLDINGS BHD
Research House: RHB
Timber sector
Maintain overweight: Sentiment for the timber sector has improved considerably since the earthquake and tsunami in Japan on March 11. The current situation has a more significant impact on the timber market than the 1995 Kobe earthquake. In 1995, inventory was high, the log supply was consistent, Indonesia was still a fairly dominant supplier to Japan and Japan still had ample domestic production capacity.
We believe tropical log prices will remain firm at above US$200 (RM606) per cu m (currently estimated at US$245 per cu m), even when log production starts to pick up, largely thanks to the robust demand from India and China. Due to the current favourable outlook for plywood demand and prices, there is a possibility that the Sarawak Forestry Department may not extend the 50% log export quota once it expires in June.
We believe it is a sellers' market now for plywood, given the anticipated increase in demand from Japan, low inventory level, limited increase in supply, and disruption in Japan's domestic plywood production. In our view, the favourable outlook for plywood will finally see plywood sales contribute more positively to timber players' earnings, unlike previous years when they incurred losses or only made a small profit from their plywood divisions.
We have revised our FY11/13 earnings forecasts for the timber companies under our coverage, having updated for: (i) higher log prices; (ii) higher plywood prices and utilisation rate; and (iii) higher cost of production for logs and plywood.
The risks include: (i) lower than expected improvement in Japan's housing starts; and (ii) price discounting from neighbouring countries with lower cost of production, resulting in lower exports from Malaysia to its major export markets.
We downgrade our call on WTK Holdings Bhd to 'market perform' (from 'outperform' previously) due to the limited upside to our fair value. WTK's share price has rallied by 65% since the Japan earthquake.
Top picks are Jaya Tiasa Holdings Bhd and Ta Ann Holdings Bhd. All in all, we reiterate our 'overweight' call on the timber sector. Top picks are Jaya Tiasa ('outperform'; fair value: RM7.84) and Ta Ann ('outperform'; FV: RM7.99) as there will be a significant boost to their earnings from the plantation division going forward due to increasing fresh fruit bunches production, apart from strong earnings contributions from the timber division. ' RHB Research, April 5
This article appeared in The Edge Financial Daily, April 6, 2011.
Company Name: TA ANN HOLDINGS BHD
Research House: RHB
Timber sector
Maintain overweight: Sentiment for the timber sector has improved considerably since the earthquake and tsunami in Japan on March 11. The current situation has a more significant impact on the timber market than the 1995 Kobe earthquake. In 1995, inventory was high, the log supply was consistent, Indonesia was still a fairly dominant supplier to Japan and Japan still had ample domestic production capacity.
We believe tropical log prices will remain firm at above US$200 (RM606) per cu m (currently estimated at US$245 per cu m), even when log production starts to pick up, largely thanks to the robust demand from India and China. Due to the current favourable outlook for plywood demand and prices, there is a possibility that the Sarawak Forestry Department may not extend the 50% log export quota once it expires in June.
We believe it is a sellers' market now for plywood, given the anticipated increase in demand from Japan, low inventory level, limited increase in supply, and disruption in Japan's domestic plywood production. In our view, the favourable outlook for plywood will finally see plywood sales contribute more positively to timber players' earnings, unlike previous years when they incurred losses or only made a small profit from their plywood divisions.
We have revised our FY11/13 earnings forecasts for the timber companies under our coverage, having updated for: (i) higher log prices; (ii) higher plywood prices and utilisation rate; and (iii) higher cost of production for logs and plywood.
The risks include: (i) lower than expected improvement in Japan's housing starts; and (ii) price discounting from neighbouring countries with lower cost of production, resulting in lower exports from Malaysia to its major export markets.
We downgrade our call on WTK Holdings Bhd to 'market perform' (from 'outperform' previously) due to the limited upside to our fair value. WTK's share price has rallied by 65% since the Japan earthquake.
Top picks are Jaya Tiasa Holdings Bhd and Ta Ann Holdings Bhd. All in all, we reiterate our 'overweight' call on the timber sector. Top picks are Jaya Tiasa ('outperform'; fair value: RM7.84) and Ta Ann ('outperform'; FV: RM7.99) as there will be a significant boost to their earnings from the plantation division going forward due to increasing fresh fruit bunches production, apart from strong earnings contributions from the timber division. ' RHB Research, April 5
This article appeared in The Edge Financial Daily, April 6, 2011.
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