PP 7767/09/2010(025354)

27 May 2010

Malaysia Corporate Highlights RHB Research

Institute Sdn Bhd
A member of the
RHB Banking Group
Resu lts Pr eview Company No: 233327 -M

27 May 2010
MARKET DATELINE

Ta Ann Holdings Share Price

Fair Value
:
:
RM4.84
RM6.45
1QFY10 Results Likely To Be Impacted By Higher FFB Recom : Outperform
(Maintained)
Cost

Table 1 : Investment Statistics (TAANN; Code: 5012) Bloomberg: TAH MK

Revenue Net profit EPS EPS Growth PER C. EPS P/NTA Net Gearing ROE GDY
FYE
(RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (x) (%)
Dec
2009a 666.6 63.8 29.7 (11.5) 15.6 - 1.5 0.5 10.5 1.1
2010f 768.8 98.7 46.0 54.6 10.1 45.0 1.4 0.4 12.4 1.5
2011f 864.1 124.6 58.1 26.3 8.0 54.0 1.2 0.2 14.0 2.5
2012f 949.6 164.0 76.4 31.6 6.1 63.0 1.0 0.1 16.1 2.7
Main Board Listing /Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ 1QFY12/10 results preview. Ta Ann’s 1Q10 results (due out today) are Issued Capital (m shares) 214.6
likely to come in below our expectations. This is mainly due to the sharp Market Cap(RMm) 1038.8
increase in FFB cost of >20% in 1Q10 vs. FY09 (from our initial assumption Daily Trading Vol (m shs) 0.06
of a flattish FFB cost yoy). The increase in FFB cost was mainly due to 52wk Price Range (RM) 3.50-6.10
higher fertilizer cost following higher fertilizer application on its plants Major Shareholders: (%)
during the quarter. As such, we have increased our FFB cost assumption to Mountex Sdn Bhd 22.21
Datuk Wahab b Hj Dollah 11.67
RM320/mt (from RM300/mt) in FY10-FY11 p.a. and maintained our FFB cost
Datuk Abdul Hamed 9.37
assumption at RM300/mt in FY12.
FYE Dec FY10 FY11 FY12
♦ Tasmania still dragging plywood division. We understand that Ta Ann’s
EPS chg (%) (15.1) (12.8) (10.9)
plywood division remains in the red as its Tasmanian operations continue to Var to C.EPS (%) 2.2 7.5 21.3
record losses, albeit at a smaller scale (improvement of 14%) qoq.
However, we note that the volume of sales of Tasmania plywood (eco PE Band Chart
plywood) has increased to 40-45% of total plywood sales in 1Q10 (from 20-
PER = 20x
25% in FY09 and 13-16% in FY08). We believe this is attributable to the PER = 15x
environmental incentive offered by the Japanese government, to encourage PER = 10x

people to build / renovate using environmentally friendly products.

♦ But improvements in plywood division could be seen from 2Q

onwards. Despite the more encouraging sales volume of Tasmanian
plywood, the higher cash cost vs. average selling prices (RM1,500-
RM1,600/m3 vs. RM1,350-1,450/m3) continue to lead the entire plywood
division into losses in 1Q10. Nevertheless, we note that average selling Relative Performance To FBM KLCI
prices transacted in 2Q10 so far for Tasmania plywood is up (+10-15%
qoq), which could mean that Ta Ann’s plywood division could start to break
even during the quarter. We have assumed Ta Ann to record a profit before Ta Ann Holdings
tax of RM10-15m for FY10, a turnaround from FY09’s losses.

♦ Forecast. We reduced our earnings forecasts by 11-15% for FY10-12 p.a.

after: 1) increasing our FFB cost assumption; 2) updating our US$/MYR
assumptions to RM3.25/US$ in CY10 (from RM3.30/US$), RM3.20/US$ in FBM KLCI
CY11 (from RM3.25/US$) and RM3.15/US$ in CY12 (from RM3.30/US$);
and 3) updating our FY09 numbers.

♦ Risks to our view include: 1) timber and CPO prices dropping; 2) a

slower-than-expected recovery in Japan’s economy; and 3) significant
reductions in crude oil-related glue and logistics costs

♦ Investment case. Following our earnings revision, our SOP-based fair

value is reduced to RM6.45 (from RM7.20) based on unchanged 14x FY10 Hoe Lee Leng
timber division earnings and 14x FY10 plantation division earnings (see (603) 92802239
hoe.lee.leng@rhb.com.my
Table 4). As such, our Outperform recommendation for the stock remains
unchanged.

Please read important disclosures at the end of this report. Page 1 of 3

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Table 2. Earnings Forecasts Table 3. Forecast Assumptions

FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 666.6 768.8 864.1 949.6 Average blended plywood 446 456 467
prices (US$/m3)
Turnover growth (%) (9.9) 15.3 12.4 9.9 Average log prices (US$/m3) 185 185 180
Average CPO prices (RM/mt) 2,500 2,700 2,500
Cost of Sales (496.8) (560.8) (591.1) (617.2)
Gross Profit 169.9 208.0 273.0 332.4 Plywood production volume 259,050 268,950 280,500
(m3)
Logs production volume (m3) 500,000 500,000 500,000
EBITDA 160.2 192.6 229.8 284.9 CPO production volume (mt) 77,121 77,121 75,240
EBITDA margin (%) 24.0 25.1 26.6 30.0
RM vs US$ 3.25 3.20 3.15
Depr&Amor (54.3) (56.0) (60.1) (63.7)
Net Interest (9.6) (6.9) (5.4) (4.4)
Associates (0.1) (0.1) (0.1) (0.1)
EI 10.6 0.0 0.0 0.0

Pretax Profit 96.2 129.7 164.2 216.8

Tax (23.2) (32.4) (41.1) (54.2)
Minorities 1.4 1.4 1.4 1.4
Net Profit 63.8 98.7 124.6 164.0
Source: Company data, RHBRI estimates

Table 4: Sum-of-parts valuation

PE (x) Total (RM’m)

Timber division 14x FY10 earnings

621.7
Plantation 14x FY10 earnings
759.8
Total 1,381.5

Outstanding shares (mil) 214.6

Fair value (RM/share) 6.44

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank
(previously known as RHB Sakura Merchant Bankers). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions
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contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
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may from time to time have an interest in the securities mentioned by this report.

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

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Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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actions of third parties in this respect.

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