Period 2Q12/1H12
Actual vs.Expectations Results came in below expectations due to a weaker
timber segment. The 1H12 earnings of RM25m only made up 22% of ours and the consensus’
forecasts of RM113m.
Dividends Unexpectedly, no dividend was
announced. We have assumed a 6 sen dividend for this quarter. This could be
caused by the weak earnings reported.
Key Results Highlights QoQ, the earnings recovered by 16% as the plantation
division’s PBT surged 27% QoQ to RM18m. However, the recovery was limited by the
weak performance of the timber division, which saw its PBT tumbled 86% QoQ to
RM0.2m.
YoY, 1H12 earnings plunged 68% with the timber division
facing a tough time as evident by its PBT plunging 95% YoY to just RM2m.
Both export logs and plywood prices have been lower than
expected. The 1H export logs average selling price (ASP) of US$208/m3 is 5%
below our estimate while the plywood ASP of US$539/m3 is 7% below our estimate.
Outlook The timber division is facing a
difficult time. We expect plywood ASP at only US$520/m3, which is below the
production cost of US$600/m3. Hence, the plywood division is likely to register
a loss for this financial year. In other words, all earnings from the export
log segment should be wiped out by losses in the plywood division in FY12E.
Change to Forecasts We have slashed our FY12-13E net
profits by 44%-18% to RM64m-RM104m mainly on lower volume and price assumptions
for the timber.
Our export logs volume assumption has been lowered by
20%-15% to 160k-170k respectively.
Our plywood ASPs for FY12-13E have been reduced by 10%-8% to
US$520/m3 each.
Our export logs ASPs for FY12-13E have been lowered by
10%-11% to US$205/m3 each.
Rating Downgrade to UNDERPERFORM
The negative outlook for the timber division should outweigh
the good prospect from the plantation division in the next 6-12 months.
Valuation Our Target Price has been cut by 18%
to RM3.75 (from RM4.60) based on an unchanged 13.4x Forward PER on the lower
adjusted FY13E EPS of 28.1 sen (from 34.4 sen).
Risks Sharp recovery in timber products ASP and
CPO prices.
Source: Kenanga
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