Ta Ann reported a lower 6M19 core net profit of RM10.9m (-10% yoy), mainly due to lower contribution from its plantation division. This was below our expectations, partly attributable to lower-thanexpected CPO and export log prices. As such, we cut our 2019-21 core EPS forecasts by 11-28%, mainly to take into account lower export log and CPO price assumptions, and lower our SOTPderived TP to RM2.90 (from RM3.25). We value Ta Ann based on a 8x 2020E PER for its timber division and a DCF value for its plantation division. We maintain our BUY rating as we still like Ta Ann for its future plantation earnings prospect given its rising matured plantation area as well as improving FFB yield and OER.

6M19 Core Net Profit at RM10.9m, Down 10% Yoy

Ta Ann reported a weaker 6M19 revenue of RM394.9m, down 12.6% yoy given lower contribution from the plantation and timber divisions. Revenues from the timber and plantation divisions were down by 14.7% and 11.3% yoy, respectively, to RM148.4m and RM246.4m. The weaker revenue was underpinned by: 1) a decline in plywood sales volumes of 28.7% yoy to 42,020m3; and 2) lower ASPs for CPO and export logs. Ta Ann’s PBT declined by 7.6% yoy to RM23m in 6M19 due to lower profits from the plantation division but this was partially mitigated by better contribution from the timber division, especially the log sub-segment. The 6M19 core net profit, after excluding one-off items, was at RM10.9m, down 10% yoy. This was below expectations, accounting for 13% and 15% of our previous and the consensus 2019 core earnings forecasts, respectively. The variance to our forecast was partly attributable to lower-than-expected CPO and log ASPs.

Weaker Earnings Sequentially

Sequentially, Ta Ann’s 2Q19 revenue increased by 20.7% qoq to RM216m, mainly attributable to higher sales volumes for its timber products and CPO, but this was partially offset by the weaker prices. The EBITDA margin was under pressure (down 3.5 ppt qoq to 17.8%) as a result of a larger increase in operating costs (+26.1% qoq). In addition, the lower timber and CPO ASPs did not help either; hence, 2Q19 core net profit declined by 45.2% qoq to RM3.9m.

Source: Affin Hwang Research - 29 Aug 2019