evergrn 5101 rm1.92 重新買回， Q2(8月份)将带来佳音.

Dollar strengthens ahead of Fed policy statement

Published: 29 July 2015 8:43 AM

Kathy Lien of BK Asset Management said that the market was divided on the timing of when the Fed will lift the fed funds rate, stuck at zero since late 2008 to support the economy's crawl back from the Great Recession. – Reuters pic, July 29, 2015.

The dollar firmed against the euro and yen yesterday as the Federal Reserve opened a two-day meeting expected to leave unchanged zero-level interest rates.

But the Federal Open Market Committee policy statement to be issued today could provide insight into the Fed's plan to raise its benchmark federal funds rate this year.

"Based on the uneven price action of the dollar, investors are waiting with bated breath for the FOMC statement," said Kathy Lien of BK Asset Management.

Lien pointed out that the market was divided on the timing of when the Fed will lift the fed funds rate, stuck at zero since late 2008 to support the economy's crawl back from the Great Recession.

With some predicting the hike in September and others in December, "the tone of the FOMC statement will have a significant impact on rate hike expectations," she said.

The pound gained ground against the greenback, boosted by data showing the British economy's growth accelerated in the second quarter to 0.7%, from 0.4% in the prior quarter.

"Today's report suggests that UK growth rates are ticking towards the high end of historical business cycles, furthering speculation that the BoE (Bank of England) will be raising rates sooner than people think," said Christopher Vecchio at DailyFX.

The US government's first estimate of second-quarter growth is due Thursday. The world's largest economy contracted 0.2% in the first quarter. – AFP, July 29, 2015.

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B)Beneficiaries of a weak ringgit 
The ringgit has fallen to its 17-year low against the US dollar this week 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. 
What Happened 
The ringgit has fallen 9% YTD and 20% yoy against the US dollar to RM3.81 
per US$1. Yet, timber products in US dollar terms have remained stable or 
inched up slightly YTD due to tight supply. On top of that, the currencies of 
India and Japan – the biggest importers of tropical log and plywood in the 
world – have also remained relatively stable against the US$. The rupee has 
fallen by only 1% while the yen declined 3% against the US$ YTD. 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$270-295/m³ in Dec 2014 to US$290-295/m³ in Jul 2015. Meanwhile, 
trade data from Japan’s customs shows that the CIF prices of plywood 
imported from Malaysia averaged at US$572/m³ in May 2014, only 2% lower 
than the average price of US$584/m³ in Dec 2015. 
What We Think 
We are keeping our price forecasts for plywood at US$580/m³ and Meranti 
Regular at US$295/m³ for 2015. The YTD price performances of these timber 
products in US$ 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%. 
What You Should Do 
We are likely to maintain our recommendations even if we raise our earnings 
forecasts for Jaya Tiasa and Ta Ann because of the weak CPO and PK prices. 
We believe the stronger timber earnings will have limited impact on their share 
prices due to the weak CPO and PK prices, which have fallen 9% yoy and 10% 
yoy, respectively. In our sum-of-parts (SOP) valuations for Jaya Tiasa and Ta 
Ann, palm oil assets made up 52% and 45% of their respective SOPs. Next 
month, Jaya Tiasa will report its 4QFY6/15 results while Ta Ann its 2QFY12/15 
results. Jaya Tiasa’s plantation division may return to profit due to higher 
seasonal FFB output (which rose 71% qoq in Apr-Jun 2015); but the division 
may still report a full-year loss for FY6/15 due to weak performance in the 
previous quarters. Ta Ann should also report stronger qoq palm oil earnings 
due to higher seasonal FFB output but the performance could be uninspiring as 
CPO and PK prices in Apr-Jun 2015 have fallen by 3% qoq and 15% qoq, 
respectively. We keep our 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. Between these two players, we prefer Ta Ann as we project it 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 (EVF MK, Add) and HeveaBoard (HAVE MK, Add).