TAANN (5012) : Ta Ann - Dialogue with the CEO
Target RM4.05 (Stock Rating: ADD)
At 73% of our and 71% of consensus’ full-year expectations, MISC's 9M14 core earnings were in line. Petroleum and chemical tanker losses look poised to narrow further in 4Q14 as we head into a seasonally-strong quarter with the benefit of lower bunker prices. FPSO Cendor will also contribute to profits beginning 4Q14. We make minor changes to our EPS estimates and keep our SOP-based target price. We maintain Add, with rerating catalysts that include improving relations with Petronas and brighter petroleum tanker prospects.
What Happened
Questions from the floor focused on its log production forecast, the impact of its plan to amalgamate four of its timber concession licences into one licence with 60-year tenure (current licences have tenures of around 10-15 years), and the progress of turnaround in its Tasmanian operations. The group explained that concession licences with longer tenures allow long-term harvest planning and will contribute towards sustainable production. It also revealed that its plywood production line in Tasmania will start operations next year and should narrow its losses in its Tasmania operation.
What We Think
Ta Ann expects its log production to rise 28% yoy to 520,000m³ this year and sustain at this level in the future. This is higher than our forecast as we had estimated a 23% increase this year followed by an 18% decline next year. While the increase in log production in 9M14 was attributed to better logging practices and good weather, it is not possible to isolate the impact of better practices from good weather. On top of that, Ta Ann has to carve out almost a third of its concession area for conservation purposes – a condition required by the State Government to amalgamate its concessions into one licence. This will reduce the harvestable areas. As such, we stick to our lower log production forecast until the improvement in log production becomes more evident. Every 1% increase in log production will increase our 2015 EPS by 0.7%.
What You Should Do
Ta Ann also hinted a higher dividend payout in the future as the completion of new planting of oil palm estates by end-15 will free up more of its cashflow for dividends. Nonetheless, we do not expect this to affect its share price significantly due to the unexciting near-term earnings outlook.
Source: CIMB Daybreak - 10 November 2014
Target RM4.05 (Stock Rating: ADD)
At 73% of our and 71% of consensus’ full-year expectations, MISC's 9M14 core earnings were in line. Petroleum and chemical tanker losses look poised to narrow further in 4Q14 as we head into a seasonally-strong quarter with the benefit of lower bunker prices. FPSO Cendor will also contribute to profits beginning 4Q14. We make minor changes to our EPS estimates and keep our SOP-based target price. We maintain Add, with rerating catalysts that include improving relations with Petronas and brighter petroleum tanker prospects.
What Happened
Questions from the floor focused on its log production forecast, the impact of its plan to amalgamate four of its timber concession licences into one licence with 60-year tenure (current licences have tenures of around 10-15 years), and the progress of turnaround in its Tasmanian operations. The group explained that concession licences with longer tenures allow long-term harvest planning and will contribute towards sustainable production. It also revealed that its plywood production line in Tasmania will start operations next year and should narrow its losses in its Tasmania operation.
What We Think
Ta Ann expects its log production to rise 28% yoy to 520,000m³ this year and sustain at this level in the future. This is higher than our forecast as we had estimated a 23% increase this year followed by an 18% decline next year. While the increase in log production in 9M14 was attributed to better logging practices and good weather, it is not possible to isolate the impact of better practices from good weather. On top of that, Ta Ann has to carve out almost a third of its concession area for conservation purposes – a condition required by the State Government to amalgamate its concessions into one licence. This will reduce the harvestable areas. As such, we stick to our lower log production forecast until the improvement in log production becomes more evident. Every 1% increase in log production will increase our 2015 EPS by 0.7%.
What You Should Do
Ta Ann also hinted a higher dividend payout in the future as the completion of new planting of oil palm estates by end-15 will free up more of its cashflow for dividends. Nonetheless, we do not expect this to affect its share price significantly due to the unexciting near-term earnings outlook.
Source: CIMB Daybreak - 10 November 2014
