26/12/2014 (The Star) - Timber companies are benefitting from rising log prices and a cheaper ringgit but weaker crude palm oil (CPO) prices are keeping some analysts wary about their immediate prospect.

Affin Hwang Research said it was “neutral” on the timber sector.

“With palm oil inventories at a 21-month high, the plunge in crude oil prices and likely record South American soybean harvest have added further pressure on CPO prices, impacting Ta Ann Holdings Bhd and Jaya Tiasa Holdings Bhd, which have CPO mills,” the brokerage said.

The research firm had recently trimmed its CPO average selling price estimations by RM200 per tonne to RM2,400 for 2015 and RM2,500 per tonne for 2016 and 2017.

For the financial year ending June 30, 2014, Jaya Tiasa’s oil palm division contributed 42% or RM33.49mil to the company’s pre-tax profit.

The group’s planted area stood at 66,283ha, while Ta Ann had some 36,944ha of planted oil palm land as at Dec 31, 2013.

Affin Hwang has a “sell” call on Jaya Tiasa, as it believes the current stock price has already priced in the expected sharp earnings boost from the company’s palm oil division.

However, sustained high demand for logs will keep supply tight and prices firm.

Subsequent to a shortage in the supply of logs, prices for plywood products are expected to remain firm, although plywood demand had softened in the first nine months.

According to Affin Hwang, the global shortage for logs has slightly lifted the average selling prices for concrete-panel plywood, which rose by 3%, and floor-base plywood, which rose by 1%, to US$540 per cu m and US$685 per cu m, respectively.

It also said Sarawak’s total export of plywood in the first nine months declined by 14.6% to 1.71 million cu m compared with last year.

“The drop was mainly due to slowing demand for plywood from Japan (-13% year-on-year or y-o-y), South Korea (-17% y-o-y) and Taiwan (-17% y-o-y),” it said.

Notably, Japan’s sluggish housing market, coupled with a weakened yen, had led to lower plywood demand.

“Fortunately, Japan has postponed its hike in the consumption tax by 18 months, previously scheduled for October 2015.

“This should help to stimulate consumer spending. Hence, we expect demand for plywood to remain relatively stable and not decline sharply, in light of Japan’s ongoing reconstruction and preparation for hosting the 2020 Olympics,” the research house noted.

At the close yesterday, Jaya Tiasa was unchanged at RM1.89, WTK Holdings Bhd was up one sen at RM1.04 and Ta Ann climbed five sen to RM3.62.

Affin Hwang has a “buy” call on WTK and Ta Ann, with target prices of RM1.70 and RM4.55, respectively.