Ta Ann’s 9M17 core net profit of RM97.9m (+4% yoy) came in largely within expectations. The improvement in earnings was largely driven by the plantation division given the higher CPO production and ASP, which offset the weaker timber unit. No changes to our 2017-19 core EPS forecasts. Maintain BUY rating on Ta Ann with an unchanged 12-month TP of RM4.25.

9M17 Core Net Profit Up 4% Yoy to RM97.9m

Ta Ann reported a stronger 9M17 revenue of RM880.1m, up 5.1% yoy given the higher plantation earnings but partially offset by a lower contribution from the timber segment. The EBITDA margin improved to 28.7% in 9M17 from 25.1% in 9M16 due to a better margin from its plantation division. Ta Ann’s core net profit, after excluding one-off items, increased by 4% yoy to RM97.9m. This was largely within expectations, accounting for 78.7% of our and 76% of the street’s 2017 estimates.

Sequentially Weaker Earnings Due to Timber Division

Ta Ann’s 3Q17 revenue increased by 15.7% qoq to RM308.2m, attributable to higher revenue contribution from both the timber and plantation divisions, up 10.6% qoq to RM101.6m and 18.4% qoq to RM206.5m, respectively. The stronger revenue was underpinned by: 1) the 24.7% and 4.8% qoq increases in export log and plywood sales volumes to 18,240m3 and 32,710m3; 2) the 6.8% and 2.7% qoq increases in export log and plywood ASPs to US$297m3 and US$461m3; and 3) higher CPO sales volume of 57,925 MT, up 19.7%. These were partially offset by the lower CPO ASP of RM2,666/MT, down 2.7% qoq. Furthermore, due to higher costs of production at the timber division, core net profit for 3Q17 declined by 25.6% qoq to RM24.8m.

Maintain BUY on Ta Ann With An Unchanged TP of RM4.25

We believe it will be a challenging environment going forward for the timber division given an increase in hill timber premium as well as a reduction in the export quota. Nevertheless, we believe that the plantation division earnings growth would be able to partially offset the drop in timber division earnings for 2018E. We leave our 2017-19 core EPS forecasts unchanged as there were no major surprises in Ta Ann’s results. We maintain our BUY rating on Ta Ann with an unchanged SOTP-derived TP of RM4.25. We value Ta Ann based on 8x 2018E EPS for its timber division, 15x for its plantation division and 1x BV for its forest plantation.

Source: Affin Hwang Research - 29 Nov 2017