RHB Research remains positive on the prospects of the timber sector, on the back of the upcoming log export ban in Myanmar with effect from April 1 and relatively stable demand from India and Japan.
It said on Friday the main earnings drivers include rising log prices, the weakening of the ringgit against the US dollar (which will benefit its export-derived revenue) and a rise in crude palm oil (CPO) prices.
“Maintain Overweight on the sector, with Jaya Tiasa as our Top Pick,” it said. It has Buy calls on WTK Holdings (FV: RM1.80), Ta Ann Holdings (FV: RM5) and Jaya Tiasa (FV: RM2.95).
“We expect tropical log prices to start increasing again from 2H2014 after any existing inventory of logs held by importing countries comes down.
“We nudge up our FY14-15 projections for WTK by 3 per cent-7 per cent, while our FV rises to RM1.80 (from RM1.76). As we expect its earnings to be boosted by higher log prices, we maintain Buy on the stock.
“We raise our FY14-15 earnings forecasts for Jaya Tiasa by 4 per cent-10 per cent, and nudge up our sum-of-parts based FV to RM2.95 (from RM2.80). Maintain Buy, as we expect higher CPO and log prices to boost earnings.
“We raise our FY14-15 earnings forecasts for Ta Ann by 2.5 per cent-4 per cent, and our SOP-based FV to RM5.00 (from RM4.88). Maintain Buy, as we expect higher CPO and log prices to boost earnings,” said RHB Research.
