Ta Ann Holdings - Oil palm earnings forecast raised, partly offset by lower plywood prices BUY

Stock Name: TAANN
Company Name: TA ANN HOLDINGS BHD

Research House: AMMB

Price Call: BUY

Target Price: 7.86

- We maintain BUY on Ta Ann Holdings Bhd, with a higher fairvalue of RM7.86/share (vs. RM7.60/share previously), based on a PE of 13xpegged to a raised FY12F EPS of 60.5 sen (vs. 58.5 sen previously).

- We have tweaked upwards our FY12F-FY13F earnings forecastsby 3% and 6% respectively, pursuant to the raising of our annual average CPOprice assumption  to RM3,400/tonne fromRM3,300/tonne previously.

- Additionally, this is after factoring in muchslower-thanexpected reconstruction activity in Japan, which has affectedplywood prices. Log prices could hold up stemming from demand in India, subjectto the rupee not weakening further.

- We now expect Ta Ann's oil palm division to fetch profit aftertax of RM154mil (+26% YoY) and RM188mil (+22%YoY) for FY12F and FY13F,respectively.

- We expect FFB production to grow by 24% and 16% annuallyto 570,000 tonnes and 663,000 tonnes for FY12F and FY13F, respectively. Weexpect the oil palm division to account for over 80% of earnings for FY12F andFY13F vs. about 77% in FY11.

- While its oil palm division continues to grow strongly, weremain concerned about its wood manufacturing division, particularly itsplywood operations.

- Plywood prices have in recent weeks been affected by weakdemand from Japan, with the average blended price falling below US$500/cu m inMarch, vs. US$622/cu m in January and US$566/cu m in February. The averageprice was at a high of US$621/cu m in FY11. 

- We now forecast an average blended price of about US$530/cum (US$550/cu m previously) each for FY12F and FY13F ' leading to pre-tax lossesof RM16mil each annually vs. an estimated RM14mil (including impairment ofnearly RM10mil) loss in FY11.

- Nonetheless, we expect the timber division to continue to besupported by the log operations, for which current prices are staying at aboutUS$220/cu m.

- The risks include:- 1) Further delays in thereconstruction of Japan's tsunami-hit north-eastern region; 2) further weakeningof the rupee, and 3) widening losses at its Tasmania veneer manufacturingoperations.   

Source: AmeSecurities