Aussie govt gives incentive for Ta Ann plywood mill

by **Cals** Tue 30 Jul 2013, 11:29

Aussie govt gives incentive for Ta Ann plywood mill
Business & Markets 2013
Written by AmResearch
Tuesday, 30 July 2013 10:49

[b style="line-height: 18px;"]TA ANN HOLDINGS BHD [] [/b]
(July 29, RM4.09)
Maintain hold at RM4.14 with a fair value of RM3.72: We maintain "hold" on Ta Ann with an unchanged fair value of RM3.72 based on a price-earnings ratio (PER) of 15 times against a 2014 financial year (FY14F) core earnings per share (EPS) of 24.8 sen.

The company announced last Friday that Ta Ann Tasmania Pty Ltd will receive a A$7.5 million (RM22.4 million) grant for its proposed plywood manufacturing project there.

It has received a letter from the Tasmanian government, stating that its A$10 million plywood mill, which was proposed earlier, is included in the government-funded A$100 million Tasmania economic rejuvenation programme.

We see this as an incentive by the Australian government to get Ta Ann to revive its aborted plan to set up the mill, which will produce plywood for the Australian market.

This follows news recently that Ta Ann would be receiving compensation amounting to A$28.6 million from the government for the partial surrender of wood entitlements under contracts with Forestry Tasmania. It commits Ta Ann to remain operating there for at least another five years.

We understand that one of its two veneer mills could be upgraded by the second half of 2014 (2H14) for the production of an estimated 24,000 cu m of plywood annually. This represents about 13% of its total plywood production.

Its Tasmania veneer production of about 75,000 cu m could be processed into 60,000 cu m to 64,000 cu m of plywood, which means the excess veneer would still be shipped back to Sarawak.

While it is positive that the capital outlay would be reduced to just A$2.5 million, we are neutral on the latest development. The production volume will be small and the reception in the Australian market and pricing remain to be seen. Nonetheless, it has the potential of narrowing losses of its Tasmanian operations by FY15F.
Comparatively, Australia's housing and CONSTRUCTION [] activities are much smaller than that of Ta Ann's main market, Japan. The latter's housing starts number close to one million per year, compared with about 150,000 for Australia. Australia's plywood imports amount to 200,000 cu m annually, while Japan's come to about 3.5 million cu m.

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We had earlier incorporated exceptional gains of RM76 million and RM7 million for FY13F and FY14F. Excluding these from its FY13F earnings, Ta Ann's average forward PER for the past five years to date would be 22.5 times. That however would be brought down to 15.5 times if the compensation is factored in within its normal historical trend.

The current implied PER for its oil palm business is about 18 times. - AmResearch, July 29

This article first appeared in The Edge Financial Daily, on July 30, 2013.