Period  4Q13/FY13

Actual vs. Expectations Ta Ann (TAANN)’s FY13 core net profit* of RM68.7m is ahead of consensus but within our expectation as it made of 110% and 101% of consensus forecast of RM62.3m and our estimate of RM67.8m, respectively.

 We believe that consensus may have underestimated TAANN’s effort to manage its cost during the tough time of low CPO prices. Note that FY13 cost of sales actually declined 1% YoY to RM586.5m which is against the historical increasing trend.

Dividends  No dividend was announced.

Key Results Highlights YoY, FY13 core net profit declined 15% to RM68.7m as CPO prices declined 21% to RM2268/mt. However, this was mitigated by better performance from the timber division as export logs’ prices improved 14% YoY to USD235/m3.

 QoQ, 4Q13 core net profit declined 14% to RM28.5m due to seasonally lower FFB volume in 4Q13 which declined 13% to 148k mt.

Outlook  Management expects FY14 to be a better year than 2013. We concur as we think the plantation division should be a direct beneficiary of better CPO prices, currently at above RM2700/mt, while the Timber division should be supported by expected better prices for export logs and plywood.

Change to Forecasts Maintain FY14E and FY15E core earnings at RM120m and RM122m, respectively.

Rating Maintain OUTPERFORM We believe investors should buy TAANN in view of better outlook for FY14E in which we expect core net earnings to grow by 74% YoY to RM120m.

Valuation  Maintain our TP of RM5.00 based on Fwd. PER of 15.5x to CY14E EPS of 32.3 sen. Our Fwd.

PER valuation of 15.5x is based on +0.5SD over 5-year Fwd. PER.

Risks to our call Lower-than-expected CPO prices.

 Lower-than-expected timber product prices.

 Higher-than-expected cost of production.

Source: Kenanga