Ta Ann’s FY22 ended with record earnings of RM349.1m, up 22.7% YoY, bolstered by stronger earnings contributions from both plantation and timber segments. The strong results were in line with the street full-year expectation, but below our expectation, making up 102% and 91%, respectively. The weaker-than-expected results were mainly due to a decline in 4Q earnings for both timber and plantation segments. Despite the dismal results, no changes to our FY23-25F earnings forecasts as we have already input a lower CPO price assumption of RM3,800/mt. Maintain Outperform with a lower SOP based TP of RM4.66 after lowering our valuations for plantation segment.

• Dragged by core segments. The weaker sales of RM72m were attributed by a decline in both timber (YoY: -35%) and plantation (YoY: -25%) sales. 4QFY22 average CPO selling price slipped from RM5,004/mt to RM3,916/mt while 4QFY22 FFB production slipped 3.5% YoY to 196,628mt. OER retreated from 20.13% to 19.99%. Timber sales weakened to RM57m as sales from log exports and plywood softened by 21% YoY and 41% YoY, respectively. 4QFY22 average log export price fell by 14.2% YoY to USD229/cu m while plywood price rose 17% YoY to USD739/cu m. 4QFY22. Log export volume tumbled 20% YoY to 10,694 cu m and plywood exports volume dropped 26% YoY to 12,509 cu m as management decided to push forward the log sales to 1QFY23 in view of the weak log prices given the stiffer competition from China.

• 4QFY22 core earnings tumbled 44% YoY to RM72m. The weaker earnings were mainly attributed to both timber (-78%) and plantation (- 43%) segments. 4QFY22 CPO production cost averaged at RM1,900/mt (FY22: RM2,100/mt, ex-PK credit of RM300/mt). Timber earnings sank to RM2.2m, as plywood made a small loss of RM0.3m while logs fell from RM3.7m to RM1.4m. Meanwhile, earnings contributions from its 31%- owned Sarawak Plantation and JV owned refinery company tumbled 68% YoY to RM6.1m.

• Outlook. Management is targeting FFB production growth of 16% to 815k mt for this year. It sees steady production cost at RM2,100/mt in 2023. Fertilizer application reached 60% of FY22 target while fertilizer cost is expected to be softer as MOP has significantly dropped to RM2,400/mt from RM3,800/mt a year ago. Total planted area stood at 49,968ha. It plans to replant 2.5k ha on peat land and another 500ha on mineral land (FY22: only 600ha was replanted). Mature area is expected to increase by 1k ha. On the timber segment, it is targeting log exports of 100k cu m and plywood sales of 108k cu m. Plywood demand is expected to remain weak in the near-term given the oversupply situation in Japan while log prices have slowly recovered since Jan. Management has set CPO price assumption of RM4,100/mt, USD270/ cu m for log price and lower plywood price of USD650/ cu m. Lastly, it has allocated capex of RM67m with RM36m for plantation development, RM7m for reforestation and remaining RM24m for upkeep and maintenance.

Source: PublicInvest Research - 27 Feb 2023