Ta Ann’s 9MFY21 core earnings surged 167% YoY to RM164m, bolstered by stronger plantation earnings and higher contribution from its associate companies. The impressive results surpassed our and the street full-year expectations, making up 86% and 90%, respectively. A higher DPS of 20sen was declared for the quarter, bringing the YTD DPS to 30sen. Commenting on the prosperity tax, management sees muted impact if it is charged at the subsidiary level. In view of the stronger-than-expected results, we raise our FY21-23F earnings forecast by 9%-20% after imputing in higher FFB production and margin expansion as well as higher contributions from associate companies. Maintain Outperform call with a higher SOP-based TP of RM4.41.

• Stronger topline driven by plantation sales (QoQ: +6.9%, YoY: +37.7%). The stronger group sales of RM486.8m were mainly led by an increase in both timber (+2% YoY) and plantation (+48.2% YoY) sales. 3QFY21 average CPO selling price jumped from RM2,604/mt to RM4,222/mt while 2QFY21 FFB production softened by 15% YoY to 193,590k mt, dragged by worsening worker shortage issue and the impact of lower fertilizer application last year. Meanwhile, timber sales rose 2% YoY to RM81.5m as plywood sales gained 14.4% YoY to RM61.8m despite a 18.5% YoY decline in log sales to RM16.3m. 3QFY21 average log export price jumped 33.7% YoY to USD258/cu m and plywood price grew 23.9% YoY to USD595/cum. Log export sales volume plunged 51.9% YoY to 14,401 cu m due to higher value species mix while plywood exports sales volume surged 49.2% YoY to 23,042 cum, attributed to strong demand from Japan.

• 3QFY21 core earnings nearly doubled to RM79.8m. The stronger earnings were mainly led by plantation segment and a turnaround in timber segment. Plantation pre-tax earnings jumped 61% YoY to RM115.6m, led by stronger profit margin. 3QFY21 CPO all-in production cost jumped 38% YoY to RM2,000/mt (9MYFY21: RM2,000/mt), attributed to an increase in windfall tax, manuring cost, and wages, higher third party FFB purchase as well as a decline in FFB production. Timber earnings saw a turnaround with a pre-tax profit of RM10.2m on the back of turnaround in plywood business while log earnings nearly halved to RM3.6m. Meanwhile, earnings contributions from its 30.4%-owned Sarawak Plantation and joint-venture owned refinery company jumped 56.3% YoY to RM13.6m.

• Outlook. Management expects FFB production to grow from 670k-700k mt to 765k mt in 2022 and it expects production to peak this month. Fertiliser application was slightly behind schedule, reaching 68% YTD due to the rainy season. On the harvester shortage, the plantation is facing up to 25%-30% worker shortage. Timber prices have been performing well in Nov with log prices hitting USD275/cu m, the highest level since Nov 2018. Plywood prices have gained more than 47% YTD, supported by vibrant construction activities in Japan amid tight plywood supplies.

Source: PublicInvest Research - 23 Nov 2021