Period

4Q15/FY15 Actual vs. Expectation

Ta Ann Holdings (TAANN)’s FY15 core net profit (CNP*) of RM169.8m came in within expectations, making up 105% of consensus (RM161.3m) and 102% of our forecast (RM164.5m).

Dividends

No dividend was announced.

FY15 DPS of 20.0 sen is below our 24.0 sen forecast, at a payout ratio of 44%, lower than our 54% target based on the 3-year average of 53%. Key

Results

Highlights

YoY, FY15 CNP jumped 55% to RM170m as Timber PBT rose 48% to RM149m on higher log prices (USD270/cubic meter (m3)), well offsetting lower sales volume (logs: -21% to 167k m3; plywood: -11% to 182k m3). Plantation PBT strengthened 29% to RM90m as higher FFB volume (+12% to 628k metric tons (MT)) outweighed lower CPO prices (- 5% to RM2,133/MT).

QoQ, 4Q15 CNP declined 31% to RM45m on softer Timber PBT (-61% to RM23m) as seasonally lower log production (- 22% to 33k m3) was compounded by lower log prices (-18% to USD236/MT). However, Plantation PBT improved 27% to RM43m on CPO price improvement (+3% to RM2,150/MT) offsetting seasonally lower FFB volume (-9% to 175k MT).

Outlook

We gather that Timber prices are trending south due to weak economic growth, while foreign buyers have started sourcing from alternative suppliers due to the strong USD. Hence, we lower our FY16E Timber selling price by 12% to USD255/m3 to reflect a softer Timber price outlook.

However, we are positive on the Plantation segment’s prospects as we expect to see higher FY16E CPO prices (+9% to RM2,400/MT) combined with above-average FFB growth prospect (+15% vs. sector average of +6%).

Change to Forecasts

We lower our FY16E CNP by 12% to RM125m on lower Timber prices as highlighted above, and introduce our FY17E CNP of RM141m.

Rating

Downgrade to MARKET PERFORM (from OUTPERFORM) In view of the stellar year-to-date 51% share price appreciation, we think the stock is almost fairly valued, particularly considering the softer Timber prospects. However, the Plantation segment outlook remains positive on strong CPO prices and solid FFB growth outlook, which should offer some earnings support.

Valuation

We reduce our TP to RM5.88 (from RM6.57) based on an unchanged Fwd. PER of 17.5x applied to lower FY16E EPS of 33.6 sen (from 38.0 sen) post earnings downgrade.

Our Fwd. PER of 17.5x is based on +0.5SD valuation which we believe is justified by TAANN’s above-average plantation growth outlook.

Besides, its decent dividend yield of 4.2%, vs. the sector average of 2.2%, also provides some downside supports.

Risks

Lower-than-expected CPO prices.

Lower-than-expected timber product prices.

Higher-than-expected cost of production.

Source: Kenanga Research - 23 Feb 2016