Ta Ann reported a higher 1Q19 core net profit of RM7m (+51.6% yoy), mainly due to higher contribution from its timber division. Nevertheless, this was below our expectations partly attributable to lower-than-expected CPO and export log prices. As such, we cut our 2019-21 core EPS forecasts by 14-18%, mainly to take into account lower export log and CPO price assumptions. We lower our SOTP-derived TP to RM3.25 (from RM3.34), based on an unchanged 8x PER on our 2020E EPS for the timber division and a DCF valuation for the plantation division. We maintain our BUY rating as we still like Ta Ann for its plantation earnings prospect given the rising matured plantation area, and improving FFB yield and OER.

1Q19 Core Net Profit at RM7m, Up 51.6% Yoy

Ta Ann registered a weaker 1Q19 revenue of RM178.9m, down 17.2% yoy given lower contribution from the plantation and timber divisions. Revenues at the timber and plantation divisions were down by 23.5% and 12.9% yoy, respectively, to RM66.8m and RM111.9m, underpinned by: 1) a decline in plywood sales volumes by 41.9% yoy to 18,261m3; and 2) 19% and 30.2% yoy lower ASPs for CPO and export logs, respectively, to RM1,931/MT and US$252/m3. Nevertheless, the EBITDA margin improved to 21.3% from 14.2% in 1Q18 due to a better margin from its timber division. Ta Ann’s PBT surged by >100% to RM12.3m in 1Q19, mainly attributable to the timber division turning profitable from being loss-making in 1Q18. The 1Q19 core net profit, excluding one-off items, increased by 51.6% yoy to RM7m. This was, however, below our expectations partly due to lowerthan-expected CPO and export log prices.

Weaker Earnings Sequentially

On a sequential basis, Ta Ann’s 1Q19 revenue declined by 24.7% to RM178.9m, mainly attributable to lower sales volumes for its timber and palm-oil products that were in turn partly due to the seasonal monsoon affecting production volumes. As such, 1Q19 core net profit plunged 79.5% qoq to RM7m.

Source: Affin Hwang Research - 29 May 2019