Ta Ann’s 1HFY22 core earnings surged 94% YoY to RM221.5m, bolstered by stronger earnings contributions from both plantation and timber segments as well as higher contribution from its associated companies. The encouraging results made up 57% and 61% of full-year forecasts, respectively. Nevertheless, our earnings forecasts remain y unchanged as we expect to see softer financial performance for 2H following a sharp decline in CPO prices. A second interim DPS of 15sen was declared for the quarter. Given the attractive upside potential of 29.5% to our revised SOP-based TP of RM5.16, we upgrade to Outperform.

• Driven by (QoQ: +34%, YoY: +44%). The stronger sales of RM654m were mainly led by an increase in both timber (YoY: +47%) and plantation (YoY: +42%) sales. Plantation sales jumped from RM377m to RM537m on the back of an increase in both CPO prices and FFB production. 2QFY22 average CPO selling price advanced from RM4,140/mt to RM6,615/mt, up 60% YoY while 2QFY22 FFB production rose 3% YoY to 158,521mt. Meanwhile, timber sales surged from RM78m to RM115m as sales from log exports and plywood increased by 6% YoY and 69% YoY, respectively. 2QFY22 average log export price rose 7% YoY to USD281/cu m and plywood price jumped 33% YoY to USD726/cu m. 2QFY22 Log export sales volume slipped 7% YoY to 17,998cu m, dragged by cheaper species while plywood exports sales volume was up 13% YoY to 23,315 cu m.

• Core earnings jumped to RM132m. The stronger earnings were mainly led by a stronger earnings contribution from both timber and plantation segments. Plantation pre-tax earnings jumped 52% YoY to RM148m, led by stronger profit margin. 1HFY22 CPO production cost averaged at RM2,200/mt (including PK credit), which was 16% higher compared to 1HFY21’s RM1,900/mt. Timber earnings surged 4-fold to RM27m, as plywood earnings surged from RM0.4m to RM18m while log earnings ros 39% YoY to RM8.5m. Meanwhile, earnings contributions from its 31%- owned Sarawak Plantation and joint-venture owned refinery company slipped 24% YoY to RM10m.

• Outlook. Management has lowered its FFB production target from 730k mt to 710k mt due to weaker-than-expected production in 1HFY22 as wet weather condition affected harvesting activities. Fertiliser application in 1H2022 reached 50% of full-year target. Management also shared that it is currently experiencing worker shortage of 20%-30% (500 workers) of its requirement. On the production cost outlook, management sees lower cost in 2H helped by lower windfall tax and higher production in 2H. There were minimal replanting activities during the quarter. On the forward sales policy, management has locked in 5-10% of monthly production at CPO price of above RM5,000/mt until Dec.

Source: PublicInvest Research - 30 Aug 2022