Ta Ann’s FY12 core earnings of 67.1m (-58.6% y-o-y) came within expectations as stronger timber and CPO sales volume were unable to offset substantially weaker selling prices. Its timber division recorded losses amid poor plywood prices and a RM13m impairment. Ta Ann is turning into a quasi-plantation company as its plantation division is likely to be its key driver for growth moving forward. Our expectations are for FFB production to grow by 23.1% y-o-y and 15.9% y-o-y in FY13 and FY14. Upgrade to NEUTRAL with an unchanged FV of RM3.40.
Within expectations. Ta Ann posted 4QFY12 revenue of RM797.4m (-0.6% y-o-y, -10.6% q-o-q) and headline earnings of RM3.1m (-89.5% y-o-y, -89.9% q-o-q) despite stronger sales volume for both its timber and oil palm divisions as weak CPO and timber prices dragged down profitability. Stripping out the RM13.2m impairment on its Tasmanian veneer plant would see 4Q core profits clock in at RM13.3m (-40.8% y-o-y, -55.8% q-o-q). Full year FY12 revenue and core profit were lower at RM797.4m (-13.9% y-o-y) and RM67.1m (-58.6% y-o-y) as the company’s timber division plunged into losses due to poor plywood prices and the veneer plant impairment. The year’s core earnings represent 96.8% and 99.6% of our and consensus forecasts.
Weak prices. ASPs for all of its major products fell in 4QFY12, with the prices for plywood (-16% y-o-y), FFB (-33% y-o-y), CPO (-28% y-o-y) and export logs (-14% y-o-y) all falling by double digits. Exports to Japan are the main drag for the timber division as the recovery in Japanese construction continues to be slow. Nonetheless, the Japanese government’s recent determination to tackle deflation in the country through easier monetary policy and increased fiscal spending may lead to higher infrastructure spending, lifting timber demand as a result.
Within expectations. Ta Ann posted 4QFY12 revenue of RM797.4m (-0.6% y-o-y, -10.6% q-o-q) and headline earnings of RM3.1m (-89.5% y-o-y, -89.9% q-o-q) despite stronger sales volume for both its timber and oil palm divisions as weak CPO and timber prices dragged down profitability. Stripping out the RM13.2m impairment on its Tasmanian veneer plant would see 4Q core profits clock in at RM13.3m (-40.8% y-o-y, -55.8% q-o-q). Full year FY12 revenue and core profit were lower at RM797.4m (-13.9% y-o-y) and RM67.1m (-58.6% y-o-y) as the company’s timber division plunged into losses due to poor plywood prices and the veneer plant impairment. The year’s core earnings represent 96.8% and 99.6% of our and consensus forecasts.
Weak prices. ASPs for all of its major products fell in 4QFY12, with the prices for plywood (-16% y-o-y), FFB (-33% y-o-y), CPO (-28% y-o-y) and export logs (-14% y-o-y) all falling by double digits. Exports to Japan are the main drag for the timber division as the recovery in Japanese construction continues to be slow. Nonetheless, the Japanese government’s recent determination to tackle deflation in the country through easier monetary policy and increased fiscal spending may lead to higher infrastructure spending, lifting timber demand as a result.
Palm oil to drive earnings. FFB production grew 9.9% y-o-y in FY12 despite generally weak production for the industry. Ta Ann’s trees are young and should experience double-digit organic production growth over the next few years, further increasing the division’s importance to the group’s total bottomline. Our expectations are for FY13 FFB production to expand by 23.1% y-o-y, before further increasing by 15.9% y-o-y in FY14 to 718,309 tonnes. Ta Ann’s oil palm trees are on average five years old, with its oldest trees at just 12 years old. The company’s planted area is now a sizable 33,824 ha, situated in the vicinity of Sibu, Sarawak.
Upgrade to NEUTRAL. We are keeping our FY13 and FY14 earnings forecasts unchanged. Our FV is hence maintained at RM3.40, based on 13.0x FY13 plantation earnings and 9.0x FY13 timber profits. Following the share price’s 9.5% decline since our previous SELL call, we are upgrading Ta Ann back to NEUTRAL.
Upgrade to NEUTRAL. We are keeping our FY13 and FY14 earnings forecasts unchanged. Our FV is hence maintained at RM3.40, based on 13.0x FY13 plantation earnings and 9.0x FY13 timber profits. Following the share price’s 9.5% decline since our previous SELL call, we are upgrading Ta Ann back to NEUTRAL.
Source: OSK
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