Ta Ann Holdings Bhd
(Aug 19, RM5.25)
Upgrade to buy at RM5.39 with revised target price of RM6.96 (from RM5.83): We upgrade Ta Ann Holdings Bhd to a 'buy' (from 'hold' previously), with a raised fair value of RM6.96 (from RM5.83 previously) based on an unchanged price earnings ratio of 15 times against an upward revised FY11F earnings per share of 46.4 sen (+19% from previous forecast of 38.9 sen).
Our FY11F net profit forecast is raised to RM143 million from RM121 million previously. We also raise our earnings by 42%'' for FY12F and 57% for FY13F, on the back of narrowing estimated losses at its Tasmania operations and higher fresh fruit bunches (FFB) volume assumptions.
Our FY11F earnings upgrade is based on: (i) A 6% increase in our FFB production volume assumption; (ii) a 67% narrowing of our loss estimate for its plywood division; and (iii) likely better than expected 2QFY11 results, particularly for its oil palm division.
We now expect Ta Ann to produce 425,000 tonnes of FFB for FY11F against our previous forecast of 400,000 tonnes. Based on its regular announcements to Bursa Malaysia, Ta Ann has harvested close to 190,000 tonnes of FFB year-to-date through June 2011.
Production in 2HFY11 should rise at an average of 40,000 tonnes per month, as more palm trees mature, but for slower harvesting amid wet weather in the last quarter. Our crude palm oil price assumption stays at RM3,300 per tonne for FY11F. Our pre-tax estimate for the oil palm division now amounts to RM139 million (+71% FY10: RM81 million) up 24% from our previous forecast of RM112 million.
For the plywood division, we now project a RM5 million pre-tax loss for FY11F (-88%, FY10: -RM43 million) against our previous forecast loss of RM15 million, given that selling prices have easily averaged over US$600 (RM1,794) per cu m for the past few months.
Its premium Tasmanian plywood had gone up to as high as US$750 per cu m in recent times. Over 40% of plywood production is made of Tasmanian wood. Overall, for the plywood division, we now assume an average selling price (ASP) of US$563 per cu m (+19%, FY10: US$471 per cu m), up 10% from our previous forecast of US$511 per cu m.
For the log division, we have tweaked our pre-tax profit forecast downwards to RM54 million (against RM60 million previously) for FY11F, based on an unchanged average export price of US$255 per cu m, but on higher costs.
Ta Ann continues to be one of the major beneficiaries of the massive reconstruction that will take place in Japan over the next few years.
The main risks to our forecasts include: (i) a global double dip recession; (ii) lower than expected CPO prices; (iii) lower than expected supply of logs; and (iv) rebuilding proposals in Japan continue to be bogged down by political/budgetary issues. Ta Ann is scheduled to release its 2QFY11 results today. ' AmResearch, Aug 19
This article appeared in The Edge Financial Daily, August 22, 2011.
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