PP 7767/09/2010(025354)

31 May 2010

Malaysia Corporate Highlights RHB Research

Institute Sdn Bhd
A member of the
RHB Banking Group
R e su l ts N o t e Company No: 233327 -M

31 May 2010
MARKET DATELINE

Ta Ann Holdings Share Price

Fair Value
:
:
RM4.97
RM6.45
Earnings Expected To Pick Up From 2QFY12/10 Recom : Outperform
(Maintained)
Onwards

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) 16.7 - 1.6 0.5 10.5 1.0
2010f 768.8 98.7 46.0 54.6 10.8 45.0 1.4 0.4 12.4 1.4
2011f 864.1 124.6 58.1 26.3 8.6 53.0 1.3 0.2 14.0 2.3
2012f 949.6 164.0 76.4 31.6 6.5 70.0 1.1 0.1 16.1 2.5
Main Board Listing /Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

RHBRI Vs. Consensus

♦ In line. Ta Ann recorded 1QFY12/10 net profit of RM8m (-8.3% yoy).
Above
Although this only accounts for 8% of our and consensus expectations, we In Line
consider this to be in line as we expect sales volume and average selling Below
prices of plywood, to pick up from 2Q onwards following a seasonally weak
Issued Capital (m shares) 214.6
1Q. Ta Ann has also declared an interim dividend of 3 sen (less 25% tax) Market Cap(RMm) 1066.7
during the quarter, in line with our full year expectations of 7 sen. Daily Trading Vol (m shs) 0.06
52wk Price Range (RM) 3.62-6.10
♦ Yoy, net profit dropped by 8.3% despite a 32% increase in revenue - from
Major Shareholders: (%)
increase in sales of logs (+20% yoy); plywood (+33% yoy); FFB (+35% Mountex Sdn Bhd 22.21
yoy); and CPO (+30% yoy) coupled with higher average selling prices of logs Datuk Wahab b Hj Dollah 11.67
(+16% yoy); plywood (+2% yoy); and CPO (+26% yoy) - due to high raw Datuk Abdul Hamed 9.37
material prices and higher FFB production cost, which rose by >20% from
FYE Dec FY10 FY11 FY12
FY09.
EPS chg (%) - - -
♦ Pick up in 2Q10. 2Q10’s average selling prices and sales data for plywood Var to C.EPS (%) 2.2 9.5 9.1

suggest that conditions for the division have improved qoq. Management
PE Band Chart
highlighted that while average selling prices for Mar 10 contract was 15%
higher than in Dec 09, the impact from these better prices would only be
fully reflected from 2Q10 onwards following the time lag between orders and PER = 20x
PER = 15x
shipment. Meanwhile, management expects both the logging and plantation PER = 10x
divisions to continue to be profitable, following sustainable demand and
average selling prices for both divisions.

♦ Building another CPO mill? In a recent news update, management

indicated that they will be investing RM50m for a second CPO mill with a
total capacity of 90t/hr in Igan, Sarawak this year. Recall that Ta Ann is
Relative Performance To FBm KLCI
currently running its first CPO mill in Naman, Sarawak, which has a total
capacity of 60t/hr. This should bode well for Ta Ann as it would then be able
Ta Ann Holdings
to benefit from milling its own fruits as well as from its neighbouring
plantation owners. As there are no further details on when the mill will be
commissioning its operations, we have yet to project any contributions into
our forecasts.

♦ Forecasts. No changes to our earnings forecasts.

FBM KLCI
♦ Risks to our view include: 1) timber and CPO prices falling; and 2) a
slower-than-expected recovery in Japan’s economy.

♦ Investment case. No changes to our SOP-based fair value of RM6.45 based Hoe Lee Leng
on unchanged 14x FY10 timber division earnings and 14x FY10 plantation (603) 92802239
division earnings (see Table 5). Maintain our Outperform recommendation hoe.lee.leng@rhb.com.my
on the stock.

Please read important disclosures at the end of this report. Page 1 of 4

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 31 May 2010

Table 2: Earnings Review (YoY)

2009 2009 2010 % chg % chg
FYE Dec Observation/ Comments
1Q 4Q 1Q QoQ YoY
(RMm)
Revenue 136.4 186.7 179.9 (3.6) 32.0 Higher topline due to yoy increase in sales of logs (+20% yoy);
plywood (+33% yoy); FFB (+35% yoy); and CPO (+30% yoy)
- Timber 103.7 124.8 130.5 4.6 25.9 coupled with higher average selling prices of logs (+16% yoy);
- Oil palm and 30.3 65.6 48.8 (25.7) 61.1 plywood (+2% yoy); and CPO (+26% yoy).
reforestation
- Property devt 2.4 2.0 0.6 (67.6) (73.7)
EBIT 13.8 24.8 14.3 (42.2) 3.5 Refer to EBIT margin below.

Finance cost (2.4) (3.2) (2.5) (20.1) 6.9 Marginally higher borrowing cost yoy.
Associates (0.1) 0.0 0.0 - -
PBT 11.4 21.6 11.8 (45.5) 3.3 Filtered down from EBIT.

Taxation (3.4) (7.8) (4.3) (44.3) 28.6

MI 0.7 4.6 0.5 (88.1) (19.6)
Net profit 8.7 18.4 8.0 (56.6) (8.3) Lower yoy due to higher taxation expense.

EPS (sen) 4.1 8.6 3.7 (56.6) (8.4)

Gross dividend 0.0 0.0 3.0 - -
EBIT margin (%) 10.1 13.3 8.0 (5.3) (2.2) Lower EBIT margin yoy due to increase in raw material input cost
coupled with higher FFB production cost.

PBT margin (%) 8.4 11.6 6.6 (5.0) (1.8)

Net profit margin 6.4 9.8 4.4 (5.4) (1.9)
(%)
Effective tax rate 29.6 36.1 36.9 0.8 7.3
(%)

Other
information
Average plywood 400.0 388.0 408.0 5.2 2.0 Yoy, 8-10% increase in coated plywood and LVL prices; offset by 8%
prices (US$/m3) drop in general plywood prices.
Sales of plywood 52.0 54.6 69.3 27.1 33.4 Sales volume on YoY basis improved, which we believe was mainly
('000m3) due to restocking activities coupled with gradual increase in
demand.
FFB prdtn 39.4 59.9 53.2 (11.1) 35.0 YoY, higher FFB production due to increase in mature hectarage.
volume (‘000
mt)

Source: Company, RHBRI

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Table 3. Earnings Forecasts Table 4. 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
^Core net profit

Table 5: 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
and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be
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
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

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 31 May 2010

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

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.

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.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

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