• Ta Ann’s 9M20 core profit of RM60.2m (+76% yoy) came in above our expectation. The higher plantation profit was driven by stronger CPO prices achieved for 9M20
• We raise our 2020E-21E core EPS by 13%-24%, mainly to take into account higher contribution from the plantation division with a higher CPO assumption of RM2,600-2,650/MT from RM2,475-2,500/MT previously)
• Maintain our BUY rating on Ta Ann with a higher target price of RM3.48 (from RM3.24 previously

Sequentially stronger on higher plantation earnings

Sequentially, Ta Ann’s 3Q20 revenue increased by 42.1% qoq to RM353.4m, while PBT rose by more than 100% qoq to RM69.3m. While profit from the plantation division was higher due to an increase in CPO prices and sales volume, the timber division was lossmaking due to the plywood sub-segment. Ta Ann’s CPO sales volume was higher in 3Q20 by 32.2% qoq to 82.8k MT and CPO ASP was at RM2,604/MT, up 14.6% qoq. After adjusting for one-off items, Ta Ann’s core net profit surged to RM38.9m, up more than 100% qoq. Also, Ta Ann has declared a DPS of 10 sen (9M19: nil) for the quarter, which was a positive surprise to us.

9M20 core net profit at RM60.2m – above our expectation

Ta Ann’s 9M20 revenue was higher at RM854.7m, up 28.9% yoy given the stronger contribution from its plantation (+42.1% yoy) and timber (+3.2% yoy) divisions. Higher plantation revenue was mainly due to higher CPO ASP of RM2,497/MT in 9M20, up 28.4% yoy from RM1,944/MT in 9M19 and CPO sales volume of 199k MT (+10.6% yoy), while the increase in the timber division was contributed by higher sales volume for export logs and plywood by 5.6% and 10.1% yoy, respectively to 76,144m3 and 64,492m3 but partially offset by a decline in ASPs for export logs and plywood by 17.2% and 13% yoy, respectively to US$192/m3 and US$476/m3 . Ta Ann’s PBT increased by 54.4% yoy to RM110.4m due to higher profit from its plantation division given higher CPO prices but partially dragged by weaker performance at its timber business due to losses at its plywood sub-segment. The 9M20 core net profit, after excluding one-off items, was higher by 76% yoy to RM60.2m. This was above our expectation, mainly attributable to better contribution from the plantation division.

Maintain BUY rating on Ta Ann with a higher TP of RM3.48

Given the strong 9M20 results, we raise our 2020E-21E core EPS by 12.8%-24.1%, mainly to take into account a higher contribution from the plantation division with a higher CPO assumption of RM2,600-2,650/MT from RM2,475-2,500/MT previously. But we lower our 2022E core EPS by 9% given the lower CPO ASP assumption of RM2,500/MT from RM2,550/MT previously. Our 12-month target price on Ta Ann is raised to RM3.48 and we maintain our BUY rating on the stock.

Key risks

Key downside risks to our BUY rating include: 1) much weaker economic growth leading to a higher consumption of vegetable oils; 2) a sustained decline in the CPO price; 3) lower-than-expected FFB and CPO production; 4) lower-than-expected log production and selling prices; and 5) unfavourable changes in government policies.

Source: Affin Hwang Research - 1 Dec 2020