Ta Ann Holdings - Prospects remain hinged on palm oil Buy

- We maintain BUY on Ta Ann Holdings, but with a lower fair value of RM4.55/share (vs. RM5.20/share previously), based on an unchanged PE of 13x against a downward revised FY13F EPS of 35 sen (vs. 40 sen previously). 

- Ta Ann’s 9MFY12 results were impacted by even wider losses at its Tasmania veneer manufacturing operations, while the logging and oil palm divisions performed largely in-line with expectations.

- Its 9MFY12 earnings of RM55.2mil (-56% YoY) accounted for only 58% of our full-year estimate, but were largely inline with consensus estimate following recent downgrades.

- In tandem, we have revised downwards our FY12F-FY14F earnings by between 13% and 26% to account for lower CPO price assumptions and the wider losses for the Tasmania operations.

- We now expect the plywood division’s annual pre-tax losses at RM36mil for FY12F and at RM30mil each for FY13F and FY14F, vs. the earlier forecasts of RM26mil for each of FY12F-FY14F. 

- For the oil palm division, CPO sales volume in 9MFY12 totalled 55,645 tonnes (-9% YoY), lower than what we had expected but only for smaller FFB purchases from external parties. We deem the FFB production of 352,153 tonnes (+7% YoY) to be within our expectations, accounting for 70% of our full-year assumption of 500,000 tonnes.

- We have lowered the CPO price assumptions to RM2,900/tonne for FY12F (from RM3,200/tonne previously), and to RM3,100/tonne (from RM3,300/tonne previously) for each of FY13F and FY14F. We maintain our FFB production assumptions.

- Management has guided that the cost rationalisation for its plywood division, particularly in reducing veneer production at its Tasmania plants, would continue right into FY13F. The target is for Tasmania to account for 30%-35% of total plywood production versus 45% in FY11.

- Plywood prices currently hover around US$540/cu m and log’s at around US$200/ cu m. That said, Ta Ann’s log earnings are likely to be offset by the plywood losses. As such, the group’s prospects remain largely hinged on its oil palm plantations and the outlook for CPO.

- We expect oil palm profit after tax to grow by 73% to RM117mil in FY13F and by another 25% to RM146mil in FY14F, on the back of a 26% and 20% jump in FFB production, respectively.

Source: AmeSecurities