Ta Ann Holdings Bhd
(Oct 16, RM3.77)
Maintain buy with target price (TP) of RM4.63: Ta Ann’s improvement in log production has helped to increase exports. The tight global supply of logs after Myanmar’s ban has kept the average selling price (ASP) for timber products firm.
In the eights months of 2014 (8M14), Ta Ann’s log production surged 28.1% year-on-year (y-o-y) to 338,061 cubic metres. The improvement in log production was partly attributed to better weather conditions, which have helped to increase the log supply. Also, Sarawak Timber Industry Development Corporation data shows that Sarawak’s log production in 7M14 increased 4% y-o-y to 4,840,568 cubic metres.
After Myanmar’s ban on log exports from April this year, total log exports from Sarawak rose 7.9% y-o-y. India, a key importer of logs, has been purchasing logs from other major producers in the world. In our view, this has kept the log ASPs firm at US$245 to US$255 per cubic metre. Notably, Ta Ann’s 2Q14 total log exports increased 30% y-o-y to 50,283 cubic metres, due to strong demand for logs, especially from India (about 69% of its total log exports). We believe that prospects for the timber division will be dependent on market demand from main export markets. With India’s demand for tropical logs still healthy, we think Ta Ann remains a stock to watch, with potential for generating core net profit growth of 35% in 2015.
We maintain our “buy” rating on Ta Ann with sum-of-parts-derived target price of RM4.63 (implied 14 times CY15E) driven by: strong earnings per share (EPS) growth of 31% to 35% in 2014E-15E on the back of firm timber product ASPs; improving plantation earnings on rising matured areas, and increasing fresh fruit bunch and crude palm oil production. We value Ta Ann based on 10 times 2015E EPS for its timber division, 14 times for plantation and 1 times book value for forest plantation. — Affin Hwang Capital Research, Oct 16
This article first appeared in The Edge Financial Daily, on October 17, 2014.