Ta Ann Holdings - FY12 within expectations, to track CPO prices HOLD

- We maintain a HOLD for Ta Ann Holdings, with a downward revised fair value of RM3.40/share (vs. RM3.79/share previously), based on a PE of 13x FY13F ESP of 26 sen (vs. 29 sen previously).

- We have tweaked downwards our FY13-FY14F earnings forecasts by 10%-11%, following the release of Ta Ann’s 4QFY12 results yesterday. We have introduced FY15F earnings at RM160mil for a 16% growth.

- It announced an FY12F net profit of RM58.3mil (-62% YoY) – which would have been in-line at 2% above our estimate of RM69.9mil, if not for a RM13.2mil impairment for its Tasmania operations. The core net profit of RM71.5mil is 6% above the consensus estimate of RM67.3mil – meaning operationally, it had performed slightly better than consensus view.

- Ta Ann declared a single-tier interim dividend of 5 sen/share (vs. 20 sen/share FY11) – below our earlier estimate of 10 sen/share.

- The continued impairment for its loss-making operations in Tasmania was not totally a surprise, as we had cautioned about it in our earlier reports. It had also made an impairment of RM9.7mil in the last quarter of FY11.

- It would be prudent on Ta Ann’s part to continue doing so in the years ahead. We believe it had made a total investment of nearly RM300mil in its Tasmania operations.

- As expected, the log division’s earnings were largely offset by the losses at its manufacturing division, which has been dragged down by the plywood operations.

- After the impairment, the timber operations incurred a pre-tax loss of RM13.7mil vs. a profit of RM50.37mil in FY11. We continue to expect its plywood manufacturing activities to offset profits from the sale of logs.

- For the oil palm division, its FY12 average CPO price at RM2,863/tonne (-13% YoY vs. FY11’s RM3,306/tonne) just fell short of our estimate of RM2,900/share, while FFB production totalled 504,000 tonnes (vs. our estimate of 500,000 tonnes).

- We maintain our CPO price assumptions at RM2,800/tonne for FY13F and at RM3,000/tonne for FY14F-FY15F. We maintain our volume assumptions.

- The group’s prospects remain largely hinged on its oil palm plantations and the outlook for CPO, with the wild cards being log and plywood prices.

Source: AmeSecurities