Period  3Q13/9M13

Actual vs. Expectations Ta Ann (TAANN)’s 9M13 core net profit* of RM39.5m is better than expected, accounting for 77% and 82% to consensus forecast of RM51.5m and our estimate of RM48.0m, respectively.

 We may have underestimated TAANN’s effort to manage its cost during the tough time of low CPO prices and weak plywood prices. Note that 3Q13 cost of sales actually declined 16% YoY to RM136.7m. This could be due the significant reduction in production volume of negative margin products in timber division, which resulted in higher margin for the division.

Dividends  A single tier dividend of 5.0 sen was announced and this is a positive surprise to us. We have previously assumed only 4.0 sen dividend for FY13 on weak earnings assumption.

Key Results Highlights YoY, 3Q13 core net profit improved 11% to RM33.0m due to strong turnaround in the timber division with PBT of RM17.2m (against 3Q12 loss before tax of RM0.7m). However, 9M13 core net profit still declined 28% YoY to RM39.5m due to the anaemic 1H13 earnings.

 QoQ, 3Q13 core net profit surged more than 10x as FFB volume jumped 57% to 169k mt seasonally in the plantation division. Additionally, expenses were reduced significantly.

Outlook  The outlook for 4Q13 and FY14 have improved significantly due to higher CPO prices, currently at above RM2,500/mt. TAANN’s effort to control its cost is also commendable, which should translate into better earnings.

Change to Forecasts   FY13E core earning is increased by 40% to RM68m while FY14E core earning is raised by 13% to RM116m. We have assumed lower cost for both plantation and timber divisions.

Rating Upgrade to OUTPERFORM (OP) (from UNDERPERFORM)

TAANN delivered a strong set of result in 3Q13 with YoY core earnings improvement of 11%. Note that this is the 1st quarter growth seen after six consecutive quarters of earnings decline YoY. We believe the trend of earnings improvement should be sustained in 4Q13 and FY14 due to better CPO prices and improved cost control.

Source: Kenanga