船头船尾: Ta Ann Holdings - Export Ban An Earnings Boost

Thursday, March 20, 2014

Ta Ann Holdings - Export Ban An Earnings Boost

With Myanmar banning log exports from 1 April 2014 onwards, we expect tropical log prices to begin increasing again from 2H2014, after any existing log inventory held at importing countries declines. We raise our FY14-15 earnings forecasts for Ta Ann by 2.5-4%, and our SOP-based FV to MYR5.00 (from MYR4.88). Maintain BUY, as we expect higher CPO and log prices to boost earnings.

Outlook remains upbeat. We continue to be positive on the prospects of the timber sector due to upcoming log export ban in Myanmar and relatively stable demand from India and Japan. The rise in log prices, the softening MYR/USD rate (which will benefit its export-derived revenue) and rising CPO prices will drive earnings for the sector.

Myanmar’s log export ban to have significant impact. Myanmar’s ban on all log exports will take effect from 1 April 2014, as its administration makes an effort to eradicate wood log smuggling and conserve forests. Myanmar is the fifth-largest tropical log producer and the third-biggest exporter in Asia-Pacific. In comparison, Malaysia is the third-largest producer and the largest exporter of tropical logs in the region. With the ban in place, we expect tropical log prices to start rising again from 2H2014, after any existing log inventory held at importing countries decreases.

Increasing forecasts. We upgrade our numbers after imputing 5-7% higher log price assumptions for 2014 and 2015 to USD250-270 per cu m (from USD240-260/cu m), as well as higher MYR/USD exchange rate assumptions of MYR3.20/USD for CY14 (from MYR3.15) and MYR3.15/USD for CY15 (from MYR3.10), based on our latest house view. As such, we raise our FY14-15 earnings forecasts for the company by 2.5-4%.

Maintain BUY. With stronger earnings from its plantation division, a stable-to-improving outlook for the timber industry, as well as the added benefit of the recent softening of the MYR against the USD, we maintain our BUY rating on Ta Ann. We also nudge up our FV to MYR5.00 (from MYR4.88), based on unchanged target P/Es of 12.0x CY14 for the timber division and 16.0x CY14 for the plantation unit.