Investment Highlights

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

• Ta Ann Holdings’ (Ta Ann) 9MFY17 results came in within expectations at 75% and 74% of our full-year forecast and full-year consensus estimates respectively.

• 9MFY17 net profit increased marginally by 2% YoY largely due to improved ASP for both CPO (+16% YoY, RM2,770/MT) and PK (+2% YoY, RM2,370/MT) and sales volume growth of 10% and 17% respectively.

• These were partially offset by a weaker performance from the timber division largely due to the decline of sales volume of export log and plywood products. The reduction in export log quota (from 30% to 20%) and certification exercise (the reduction in annual coupe size and increase in cutting diameter to a minimum limit of 45-50cm), effective July 1, 2017 has caused the significant drop for export log sales volume for the period.

• Ta Ann’s earnings visibility remains positive. The company expects demand for its plywood products to pick up in the near term with the rollout of Olympic infrastructure construction works in Japan. On the other hand, its oil palm plantations will continue to provide a steady income stream and will become the main profit contributor in coming quarters.

• 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) the reduction of log export to 20%; 2) certification exercise, including reduction in annual coupe size and increase in cutting diameter to 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 - 29 Nov 2017