• Maintaining our BUY rating on Ta Ann with TP unchanged at RM3.48
• We expect a good earnings recovery in 2020E due to stronger CPO prices while 2021E earnings growth would be underpinned by higher FFB and CPO production as well as a recovery in the timber division
• The easing of lockdowns and re-opening of global economies have allowed construction works to resume. This has helped to increase demand for timber products and improve prices

Plantation as main earnings driver

We expect 2020E earnings to grow by 69.7% yoy due mainly to higher contribution from the plantation division given the stronger CPO prices and another 24.5% yoy in 2021E due mainly to a recovery in the timber division and higher FFB and CPO production. We make no changes to our CPO assumption for Ta Ann at RM2,650-2,600/MT in 2020-21E (2019 CPO ASP: RM2,052/MT). Palm-oil prices have seen a V-shaped recovery in 2020 and we believe it will remain supported going into 1H21, underpinned by tight stock levels, concerns about CPO production given the weather uncertainties and strong prices of other edible oils. Looking at 2H21, we believe prices could potentially be under pressure as production picks up.

Expecting recovery in 2021 FFB production

We expect Ta Ann’s own FFB production to improve in 2021E by about 11% yoy to 799k MT underpinned by better weather conditions and a higher FFB yield, after a c. 3.5% yoy drop to 722k MT in 2020E due to the lagged effect of the dry weather in 2019, lagged effect of lower fertilizer application and labour shortage issues.

Recovery in demand for timber products

Fortunately, with the easing of lockdowns since 3Q20, demand for timber products has improved, especially from India and Japan (Ta Ann’s top buyers for logs and plywood, respectively). There has been an increase in export logs and plywood average selling prices as demand improves with the re-opening of economies that has allowed construction works to resume.

Maintain BUY with TP of RM3.48

We have not made any earnings forecast changes in this report. We maintain our BUY rating on Ta Ann with an unchanged target price of RM3.48. We continue to like Ta Ann given its improving earnings prospects in 2021E with rising FFB and CPO production and recovery in the timber division.

Source: Affin Hwang Research - 23 Dec 2020