Investment Highlights

• We maintain our forecast, HOLD call and SOP-based FV of RM3.60 (Exhibit 2).

• Ta Ann Holdings’ (TAH) 1QFY17 came in at 31% and 31% of our full-year forecast and full-year consensus estimates respectively. We consider the results within expectations as we expect weaker plantation profits over the remaining quarters on weaker palm oil and palm kernel prices.

• TAH declared an interim single-tier dividend of 5 sen per ordinary share for the financial year ending 31 December 2017.

• 1QFY17 PBT more than tripled YoY and 51% QoQ underpinned by better performance from its palm oil division contributed by the following:

1. Strong CPO demand and ASP – Sturdy earnings from the CPO division thanks to better CPO ASP in 1Q17. CPO ASP rose by 23% YoY and 18% QoQ to RM2,933/MT (1Q16: RM2,383 MT and 4Q16: RM2,486/MT). Meanwhile, YoY CPO volume rose by 32% and QoQ volume dropped by 10% to 44,510 MT (1Q16: 33,625 MT and 4Q16: 49,427 MT).
2. Robust growth in Palm Kernel (PK) ASP – ASP for PK surged 54% YoY and 5% QoQ to RM2,956 MT. In addition, PK’s sales volume improved significantly YoY by 42% but declined 8% QoQ to 9,495 MT.

• However, earnings from timber and plywood divisions remain sluggish due weaker ASP and demand for both timber export and plywood products.

1. Lackluster earnings from timber division - Timber exports ASP increased by 13% YoY and decreased marginally by 3% to US$249. Timber volume continued to plunge 35% YoY and 13% QoQ due to: 1) weaker export demand; 2) certification exercise, including reduction in annual coupe size and cutting diameter to increase with a minimum limit of 45-50cm; and 3) increase in cess payment to RM50/m3 for hill timber activities effective 1 July 2017. The size of hill logging is approximately half the size of the allowed harvesting land area. However, the premium increment could be partially offset by raising selling price for export logs. Demand is expected to increase relating to construction activities for the upcoming Japan Olympics in year 2020.

• We continue to like Ta Ann because: 1) plantation business is expected to grow due to the rise of volume and prices; and 2) expansion of its plantation business through the acquisition of Agrogreen Ventures and progress on 2 Non-Customary Right JV projects which will add >9,000 hectares to its existing plantation estate. However, the outlook of its timber business continues to be lacklustre.

Source: AmInvest Research - 24 May 2017