Ta Ann’s 2018 core net profit declined to RM70.7m (-49% yoy) mainly due to lower contribution from both the timber and plantation divisions. Nevertheless, this was broadly within our expectations. Importantly, unlike some of its plantation peers, Ta Ann has managed to remain profitable which we think will be sustainable especially given likely improved ASPs and higher production ahead. We make no changes to our 2019-20 core EPS forecasts, but raise our SOTPderived 12-month TP to RM3.44 (from RM2.80) primarily on a higher PER target for the plantation division. At 10x 2019E EPS, Ta Ann’s valuation still looks attractive despite the 29% gain over the past 3 months. Maintain BUY.

2018 Core Net Profit at RM70.7m, Down 49% Yoy

Ta Ann registered 2018 revenue of RM962.2m, down 17.8% yoy given the lower contribution from the plantation and timber divisions, down by 7.5% and 23.5% yoy, respectively, to RM383.7m and RM578.1m. The weaker revenue was underpinned by: 1) a decline in plywood and export log sales volumes by 16.3% and 28.9% yoy, respectively, to 120,123m3 and 43,040m3; 2) a decline in the FFB sales volume by 1.5% yoy to 727.9k MT; and 3) a lower CPO ASP of RM2,128/MT, down by 22.4% yoy. The EBITDA margin weakened to 20.1% in 2018 from 27.8% in 2017 due to weaker margins from both its plantation and timber divisions. Ta Ann’s 2018 core net profit, excluding one-off items, declined by 49% yoy to RM70.7m. This was largely within our and street expectations.

Stronger Core Net Profit Sequentially

Ta Ann’s 4Q18 revenue declined by 13.5% qoq to RM237.7m, attributable to lower sales volumes from plywood (-2.5% qoq), CPO (-15.6% qoq) and FFB (-15.9% qoq) as well as a higher ASP for plywood products (+2% qoq). Nevertheless, Ta Ann’s 4Q18 core net profit increased by 39.9% qoq to RM34.2m, partly attributable to better contribution from associates.

Source: Affin Hwang Research - 1 Mar 2019