Investment Highlights

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

• Ta Ann Holdings’ (TAH) 1HFY17 net profit was within expectations at 56% and 58% of our full-year forecast and full-year consensus estimates respectively.

• TAH declared an interim single-tier dividend of 5 sen per ordinary share for the financial year ending 31 Dec 2017. This brings to 10 sen year to date.

• 2QFY17 PBT surged by 45% YoY thanks to better performance from its palm oil division underpinned by the following:

1. CPO production, which rose by 11% and 10%, YoY and QoQ respectively. Meanwhile ASP rose by 16% YoY to RM2,736/MT (2Q16: RM2,363/MT) although declined by 7% QoQ (1Q16: RM2,933).
2. Palm kernel volume, which surged by 21% YoY to 10,316/MT (2Q16: 8,535/MT) and 9% QoQ (1Q17: 9,495/MT.

• However, 2QFY17 PBT QoQ was flat as improved earnings from the oil palm division were offset by reduced profits from the timber division (due to lower volumes of timber and timber product exports).

• TAH’s earnings prospects are positive. The quota reduction for export logs (from 30% to 20% effective July 1, 2017) will be channelled to produce more plywood products (i.e. products with higher plantation and certified woods components; and to utilise imported PEFC certified eucalyptus veneer) which saw an increase of US$25/m3 to date. On the other hand, its oil palm plantations will continue to provide a steady income stream.

• We continue to like Ta Ann because: 1) plantation earnings are expected to rise on higher production and prices; and 2) expansion of its plantation business through the acquisition of Agrogreen Ventures and progress on two Non-Customary Right JV projects which will add >9,000 hectares to its existing plantation estate. However, the outlook of its timber business will remain unexciting due to state enforcement rules which include 1) reduction of log export to 20%; 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.

Source: AmInvest Research - 23 Aug 2017