Ta Ann may have a bullish breakout

Ta Ann Holdings Bhd ('Ta Ann') is one of the largest timber company in Malaysia. The company has recently announced its results for for 4Q2007 ended 31/12/2007. For QE31/12/2007, its net profit dropped by 58.9% q-o-q or 73.8% y-o-y to RM12.3 million. Its turnover has also declined by 7.6% q-o-q or 17.8% y-o-y to RM161 million. For the quarter under review, the net profit has declined due to lower profit form the plywood division (due to lower selling prices as well as higher freight charges & raw material costs). In addition, Ta Ann's Tasmanian subsidiary incurred a loss of RM6.5 million during the quarter for similar reasons plus write-off of start-up expenditure. This poor performance is partially offset by the oil palm division, which saw its profit contribution increasing from 28% to 58% of the group's overall pre-tax profit.

For FY2007, Ta Ann's net profit declined by25.6% from RM130.4 million to RM97.0 million, while its turnover has dropped by 10.6% from RM637 million to RM570 million.



Ta Ann (closed at RM6.50 as at Mar 3) is now trading at a trailing PE of 14.4 times (using its last 4 quarters' EPS of 45.2 sen) or at a P/Book of 2.1 times (using its NTA per share of RM3.15 as at 31/12/2007). At these multiples, Ta Ann is deemed fairly priced.

From the next table, we can see that the timber prices have yet to show any sign of reversing. So, going forward, I believe that Ta Ann's performance will be more dependent on its oil palm division. Ta Ann may breath a sigh of relief, seeing the present sharp rise in the prices of CPO. But, how long will this persist?


Source: The ITTO Tropical Timber Market Reports

The reason for this post is that, despite the poor performance as noted above, Ta Ann has broken to the upside of a few resistances, such as the strong horizontal resistance of RM6.40-50 (which happened about 2 days ago) as well as a medium-term downtrend line at RM6.10-20 (which happened about 6 days ago). Finally, Ta Ann gained 30 sen to close at RM6.80 this morning. In the process, Ta Ann has also broken to the upside of the shorter term downward channel (starting from September last year). You will notice that the last 2 weeks' trading volume has also been quite heavy, indicating that a big buyer is now eagerly buying this stock, despite the present stock market condition.


Chart 1: Ta Ann's daily chart as at March 3, 2008 (courtesy of Quickcharts)



Chart 2: Ta Ann's weekly chart as at March 3, 2008 (courtesy of Quickcharts)

Based on the technical breakout, Ta Ann could be a Trading Buy. Nevertheless, we must note that the fundamentals of the company is not very favorable, and the stock market condition is presently very precarious.