Period  1Q14

Actual vs. Expectations Ta Ann (TAANN)’s 1Q14 core net profit* (CNP) of RM29m is within expectation. Note that it accounts for 25% of consensus full-year FY14 forecast of RM114m and 21% of our estimate of RM139m, respectively.

Dividends  Unexpectedly, a 10.0 sen dividend was announced with ex-date on 5-Jun-2014. This is a positive surprise as it came earlier than expected. However, we keep our total dividend estimate for FY14 at 12.9 sen at this juncture based on an unchanged dividend payout assumption of 40%.

Key Results Highlights YoY, 1Q14 CNP surged 637% to RM29m as CPO prices improved 14% to RM2499/mt. Timber division also did well with export logs’ prices higher by 20% YoY to USD251/m3. We believe that better timber prices could be caused by Myanmar export ban on timber logs.

 QoQ, 1Q14 CNP improved 2% to RM29m due to better CPO prices (+5% to RM2499/MT) Again, timber division performed well with timber prices increased 12% to USD251/m3 based on same reason mentioned above.

Outlook  Management expects that the good demand seen in timber and timber products is likely to be carried forward to 2Q14. Better profit is also expected from plantation division with management projecting that CPO prices will stay around RM2600/MT. We concur with these view and we believe that TAANN FY14 CNP should grow by 74% to RM120m.

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

Rating Maintain OUTPERFORM

TAANN’s earnings recovery is still at its early stage and hence we believe that investors should start accumulating the share.

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