Ta Ann’s 2017 core net profit of RM126.7m (-1% 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 2018-19E forecasts given that results were inline. Maintain BUY rating on Ta Ann with an unchanged 12-month TP of RM4.25.

2017 Core Net Profit at RM126.7m, Within Expectations

Ta Ann registered 2017 revenue of RM1.17bn, up 2.2% yoy given the higher plantation contribution, offsetting a decline in the timber segment. The EBITDA margin improved to 27.2% in 2017 from 24.4% in 2016 due to a better margin from its plantation division. Ta Ann’s 2017 core net profit, after excluding one-off items, declined slightly by 1% yoy to RM126.7m. This was largely within expectations, accounting for 102% of our and 99% of the street’s 2017 estimates, respectively.

Marginal Decline in Revenue for Both Plantation and Timber Division

Sequentially, Ta Ann’s 4Q17 revenue declined by 5% qoq to RM292.8m, attributable to lower revenue contribution from both the timber and plantation divisions, down 6.4% qoq to RM95.1m and 4.3% qoq to RM197.6m, respectively. The weaker revenue was underpinned by: 1) the 59% qoq decline in export log sales volumes to 7,453m3; 2) lower FFB and CPO sales volume by 13 and 7%, respectively, to 188,220 MT and 54,039 MT. These were partially offset by the higher export log ASP of US$338/m3, up 14% qoq. Core net profit for 4Q17, after excluding one-off items, increased by 14.1% qoq to RM28.3m, partly attributable to lower tax rate in 4Q17.

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 - 1 Mar 2018