Target RM4.79 (Stock Rating: ADD)
Ta
Ann's FY13 core net profit was in line, at 98% of our full-year
estimate, but was 17% below consensus. 4Q core net profit rose more than
five-fold due to lower timber losses. As expected, no dividend was
declared. We fine-tune our FY14-15 EPS forecasts, leading to a 3 sen cut
in our SOP-based target price to RM4.79. Ta Ann remains an Add.
Potential re-rating catalyst is stronger FY14 earnings, driven by higher
CPO prices and stronger FFB output.
Result highlights
4Q core net profit rose 446%yoy to RM12.3m due to lower timber losses. Timber pretax loss narrowed from RM18m in 4Q12 to RM7m (excl. non-core items) in 4Q13. Higher log prices (8%) helped the group to narrow its losses. Palm oil PBT was down 1% yoy on lower FFB output (-2% yoy). Non-core items included in FY13 reported profit are mainly 1) a gain of RM62m from compensation by the Australian government, and 2) a write-down of RM21m in its plywood inventory. To recap, Ta Ann renegotiated its wood supply agreement with the Australian government last year in which it committed to continue its Tasmanian operation until Jun 2018 in return for a compensation of A$28.6m. However, the operation is unprofitable due to high operating costs. This inflated its plywood inventory cost and led to the subsequent write-down. We deem the write-down as non-core as the compensation should be sufficient to offset the current and future write-downs in plywood inventory.
Tasmania turnaround plan
The group is installing a plywood line in Tasmania, where it expects to process 60% of its Tasmanian veneers when it is completed in 4Q14. Plywood produced by the new line will be marketed in Australia. We expect this will lower its transportation cost as it will no longer need to ship the veneers to Sarawak for processing. Smaller losses in Tasmanian operation could ensue.
Not affected by Wilmar's new sourcing policy
Ta Ann plans to comply with Wilmar's sourcing policy by completing all of its new planting on peat area by end-14. As such, Wilmar's new sourcing policy will not hurt Ta Ann. However, it may have to review its plans to develop the 33k ha of native customary rights (NCR) land that it is negotiating for.
4Q core net profit rose 446%yoy to RM12.3m due to lower timber losses. Timber pretax loss narrowed from RM18m in 4Q12 to RM7m (excl. non-core items) in 4Q13. Higher log prices (8%) helped the group to narrow its losses. Palm oil PBT was down 1% yoy on lower FFB output (-2% yoy). Non-core items included in FY13 reported profit are mainly 1) a gain of RM62m from compensation by the Australian government, and 2) a write-down of RM21m in its plywood inventory. To recap, Ta Ann renegotiated its wood supply agreement with the Australian government last year in which it committed to continue its Tasmanian operation until Jun 2018 in return for a compensation of A$28.6m. However, the operation is unprofitable due to high operating costs. This inflated its plywood inventory cost and led to the subsequent write-down. We deem the write-down as non-core as the compensation should be sufficient to offset the current and future write-downs in plywood inventory.
Tasmania turnaround plan
The group is installing a plywood line in Tasmania, where it expects to process 60% of its Tasmanian veneers when it is completed in 4Q14. Plywood produced by the new line will be marketed in Australia. We expect this will lower its transportation cost as it will no longer need to ship the veneers to Sarawak for processing. Smaller losses in Tasmanian operation could ensue.
Not affected by Wilmar's new sourcing policy
Ta Ann plans to comply with Wilmar's sourcing policy by completing all of its new planting on peat area by end-14. As such, Wilmar's new sourcing policy will not hurt Ta Ann. However, it may have to review its plans to develop the 33k ha of native customary rights (NCR) land that it is negotiating for.
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