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Thursday, July 30, 2015

CIMB Research keeps Reduce for Jaya Tiasa, Hold for Ta Ann

KUALA LUMPUR: CIMB Equities Research is keeping its Reduce call on Jaya Tiasa due to the concern on its weak estate productivity and our Hold call on Ta Ann due to limited share price upside.
It said on Thursday that between these two players, it prefers Ta Ann which will offer a decent dividend yield of 4.7% in FY15.
“Investors who seek greater share price upside should switch to the pure downstream timber players, such as Evergreen Fibreboard (Add) and HeveaBoard (Add),” it said.
CIMB Research said the ringgit has fallen to its 17-year low against the US dollar this week -- down 9% year-to-date and 20% on-year amid weak commodity prices and strengthening of the US dollar against most major currencies.
A weak ringgit will benefit the timber players as timber products are mostly exported and priced in US dollar.
“However, the impact on the share prices of the Sarawak timber players could be muted as a result of weak CPO prices. We maintain Neutral on the sector with Ta Ann as our preferred pick between the two Sarawak timber stocks that we cover,” it said.
According to Japan Lumber Report, the supply of tropical logs has been tight due to the state government’s efforts to fight illegal logging. This has pushed up the FOB prices of Meranti Regular, the benchmark price for Sarawak logs, from US$270-US$295 per square metre in Dec 2014 to US$290-US$295 in July 2015.
Meanwhile, trade data from Japan’s customs shows that the CIF prices of plywood imported from Malaysia averaged at US$572 in May 2014.
“We are keeping our price forecasts for plywood at US$580 and Meranti Regular at US$295 for 2015. The YTD price performances of these timber products in US$ terms broadly meet our expectations.
“However, there is an upside to our projections of Jaya Tiasa and Ta Ann’s timber earnings as we have assumed an exchange rate of RM3.70 to US$1 in our earnings models.
“This is in line with our current house’s view but lower than the spot US$/RM rate of 3.81. Should the current exchange rate persists, we may raise our FY15-17 net profit forecast for Jaya Tiasa by 11%-30% and Ta Ann by 6%-13%,” it said.

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