Credit Suisse goes bull on Ta Ann

Read this article posted on Business Times. Plywood price rebound a boon to Ta Ann

The first paragraph reads

• TA ANN Holdings Bhd, one of the largest timber companies in the country, has been upgraded to "outperform" from "neutral" by Credit Suisse on signs that plywood prices are starting to rebound after falling for the last 12 months.

I was left curious.

I used Globalwood website as my indicator for plywood prices.

This is Dec 2007 Market prices link: http://www.globalwood.org/market1/aaw20080202a.htm

This is Jan 2008 Market prices link: http://www.globalwood.org/market1/aaw20080101a.htm

This is Feb 2008 Market Prices link: http://www.globalwood.org/market1/aaw20080202a.htm



Perhaps my eyes are failing but do I see plywood prices rebounding? Do you? Or maybe I am using a poor website?

The article then continues..

• The fresh target price for Ta Ann is RM9.20 a share, more than a third of the stock's last trading price.
  
  According to Credit Suisse, Ta Ann's share price, historically has a 74 per cent correlation with plywood prices.
  
  It noted that in the last cycle, plywood prices bottomed in December 2005 and its share price surged by up to 51 per cent when plywood prices rose in 2006.

Ta Ann closed yesterday at 6.65!

Now given the fact that Ta Ann was only trading a low of 5.65 on Feb 15th, this would mean that Ta Ann's share price has already appreciated by a whopping 1.00.

See the nice chart posted on BTimes.



Assuming that the date of the Credit Suisse report is fresh and not too out-dated, then surely one would ask why after the share price had already increase so much, then only publish such a bullish article on Ta Ann with a whopping target of rm9.20?

"Macam Mana Ni?"

Gee thanks Credit Suisse!

The article then continues

• "Ta Ann's plywood prices bottomed after falling 38 per cent from the high in late 2006. Prices are just starting to recover. The risk to our target price is if plywood prices don't recover or if there is a total ban on logging in Malaysia," the report stated.
  
  Ta Ann, which exports 98 per cent of its plywood to Japan, had a challenging time in 2007, hurt by an 18 per cent drop in Japan's plywood imports, the steepest drop since the Asian financial crisis a decade ago.
  
  For the year ended December 31 2007, Ta Ann's sales grew by five per cent to RM669.6 million while net profit fell 26 per cent to RM97 million.

Ta Ann net profit fell 26%.

Of course, they would argue that stocks should be valued based on what they earn in the future, which I accept. However, are plywood prices rebounding?

How?

Read more...

Random Musing on the Timber Sector

Hope you do not mind but I decided to make some random musing on the timber sector.

In the timber sector, in my opinion, there are only two investment grade stock, WTK Holdings and Ta Ann. They are the leaders in the sector for their superior earnings performance and this has been reflected perfectly in the stock market.

Let's look at the recent performance of WTK Holdings until June 2007 ( I will show the bigger pix next). Now WTK had a recent stock Bonus Issue and share split ( see Entitlement - Others ). The below chart represents a priced adjusted chart to account for this corporate exercise. Chart is provided by Kenwealth.



I placed two jelly beans on the chart as simple markers. The first lower jelly bean indicates an ADJUSTED price of roughly 1.16 in Jan 2006. And the upper jelly bean indicates a price of 3.90 in April 2007. Hence an investment in WTK HAD BEEN EXTREMELY profitable for an investor despite the fact that WTK belongs to the highly cyclical timber sector.

They say earnings is always the main catalyst for a stock to appreciate much higher.

Back for its fy 2005 earnings, WTK earned some net earnings of 53 million. A year later its fiscal 2006 earnings rocketed to 127 million. ( See Quarterly rpt on consolidated results for the financial period ended 31/12/2006 - do note the extremely impressive cash flow generated for that fiscal year 2006! - and you can see this older blog posting on WTK - About WTK )

However, the recent two earnings, the weakness in earnings was seen. This was their May earnings note, Quarterly rpt on consolidated results for the financial period ended 31/3/2007 and this was their earnings reported recently Quarterly rpt on consolidated results for the financial period ended 30/6/2007 ).

So in May it announced it made 29 mil. Last month, WTK announced it made only 15 mil. Sharp decline in earnings? Remember the last 2 quarters of its last fiscal year, WTK was earning around 46 million plus!

Now for this fiscal year, its half year earnings totals only some 44 mil. At such a pace, WTK would probably be making less than 90 mil this fiscal year. Which would be a massive decline when compared to its fiscal year 2006 earnings.

Now back to the charts. Let me show you the full WTK chart, meaning to say, let's look at how the market is reacting to the current weakness in WTK's earnings.



WOW!

Yes, can you see how WTK share price is plunging?

This chart depicts the clear and precise danger in investing in cyclical stocks. When the cycle turns for either good or bad, the reaction in the market price would be simply drastic.

WTK's sharp increase in earnings saw it enjoyed a truly wonderful life. Its share simply soared. And when its earnings turned, indicating that perhaps the good fortune in the timber cycle has ended, the stock simply plunged.

Now let's look at Ta Ann.

Ta Ann earnings jumped from some 81 million to some 130 million for its fy 2007. Quarterly rpt on consolidated results for the financial period ended 31/12/2006

And its current half year earnings, TA Ann earned only some 50 million. A clear indication that perhaps this year, its fiscal year earnings would disappoint. Quarterly rpt on consolidated results for the financial period ended 30/6/2007

Have a look at the chart for Ta Ann.



WOW! Dejavu?

Anyway, again Ta Ann enjoyed incredible success. One could have purchased Ta Ann for around 4.80 back in June 2006 and a year later, one's investment would have soared to some 11.50! Now this is investment, eh?

But like WTK, the share has taken a drastic turnaround and top be more precise, the share price is plunging just like WTK Holdings!

How?

Would you use market leaders such as WTK Holdings and Ta Ann as an indicator for the timber sector?

Read more...