• Ta Ann’s 2020 core profit of RM56.5m (-2.3% yoy) came in below our expectation. The variance was mainly due to higher-than-expected losses at its timber division and a higher tax rate
• Despite 2020 results falling below our expectation, we make no changes to our 2021E-22E core EPS. We believe Ta Ann’s 2021E earnings will be stronger, underpinned by an increase in CPO production and ASP as well as an improvement in the timber division
• Maintain BUY rating with an unchanged 12-month target price of RM3.48

Weaker Sequentially Due to Higher Losses at Timber Division

Ta Ann’s 4Q20 revenue rose by 2.7% qoq to RM363.1m due to higher plantation revenue, but PBT declined by 65.3% qoq to RM24.1m attributable to lower plantation profits and higher losses at the timber division due to its loss-making plywood sub-segment and impairments of PPE. After adjusting for one-off items, Ta Ann reported a core net loss of RM3.4m in 4Q20 vs. a core net profit of RM38.9m in 3Q20. Also, Ta Ann declared a DPS of 5 sen, bringing its 2020 total DPS to 15 sen (2019: 5 sen), as expected.

2020 core net profit at RM56.5m – below our and consensus expectations

Ta Ann’s 2020 revenue increased by 28.8% yoy to RM1.2bn. The higher plantation revenue was mainly due to the higher CPO ASP of RM2,653/MT in 2020, up 29.3% yoy, and CPO sales volume of 272.4k MT (+8.2% yoy). The increase in the timber division was contributed by higher sales volumes for export logs and plywood by 0.7% and 20.1% yoy, respectively, to 95,118m3 and 98,242m3 that were partially offset by ASP declines for export logs and plywood by 8.6% and 10.4% yoy, respectively to US$201/m3 and US$475/m3. Ta Ann’s PBT increased by 21.6% yoy to RM134.5m due to higher profits from its plantation division given higher CPO prices but this was partially dragged down by weaker performance at its timber business due to losses at its plywood sub-segment. However, 2020 core net profit (after excluding one-off items) was slightly lower by 2.3% yoy to RM56.5m, below our expectation mainly attributable to higher-than-expected losses at its timber division and a higher tax rate.

Maintain BUY Rating on Ta Ann With An Unchanged TP of RM3.48

Despite the weak 2020 results, we make no changes to our 2021E-22E core EPS. We believe Ta Ann’s 2021E earnings will be stronger underpinned by an increase in CPO production and ASP as well as improvement in the timber division. Our 12-month target price on Ta Ann is unchanged at RM3.48.

Source: Affin Hwang Research - 23 Mar 2021