- We upgrade Ta Ann to BUY, with a higher fair value of RM5.12/share (vs. RM3.69/share previously), based on an 11x PE FY15F EPS, after it announced a much better-thanexpected 3QFY15 result.

- The 11x PE is four notches below its 10-year forward PE valuation of 15x, which we believe is justified given that it is still unclear if its plywood/manufacturing division can sustain profitability but for the weak ringgit.

- Ta Ann posted a 3Q15 core net profit of RM65.2mil (+99%QoQ, +147% YoY), bringing the total for 9MFY15 to RM124mil (+31% YoY) – accounting for 118% and 109% of our and consensus estimates, respectively.

- Ta Ann declared a second interim dividend of 10 sen/share, bringing the total to 20 sen/share – exceeding our earlier 15 sen/share assumption. We now assume a full-year 54% payout or 25 sen/share.

- Given the better-than-expected performance of the timber division, we have upped our FY15F-FY17F earnings forecasts by 50-67%.

- This is against the backdrop of the weak ringgit and betterthan- expected log prices. For FY15F, we now assume log ASP at US$275/cu m vs. US$220/c m previously, and the ringgit at 3.8 to the dollar vs. 3.20 previously.

- For FY16F-FY17F, we are assuming log prices at US$230- US$245/cu m and the ringgit at 4.00 to the dollar. Log prices averaged US$279/cu m in 9MFY15.

- Going forward, the bottom line will be well supported by the fast-growing plantation division and log exports – for a 14% and 10% growth for FY16F and FY17F, respectively.

- Our projections now assume that the plywood/manufacturing division will contribute to about a quarter of group earnings for each year.

- For the oil palm division, we have cut our CPO price assumptions by 6%-10%. The group achieved an average CPO price of RM2,125/tonne for 9MFY15. We have also cut our FFB production estimate by 6% to 640,000 tonnes for FY15F.

- But for the weak ringgit, it is still unclear if the plywood division will be able to sustain profitability. Regardless, deep value has emerged in view of its log and plantation divisions.

- Additionally, the lack of capex requirements means Ta Ann will be able to distribute more dividends. Upgrade to BUY.

Source: AmeSecurities Research - 17 Nov 2015