News

Ta Ann Holdings (TAANN) has proposed to undertake a 1:5 bonus issue, excluding treasury shares held by TAANN as of the entitlement date.

This should effectively increase its number of shares to 444.8-444.9m (from 370.5m currently).

Comments

We are positive on the corporate exercise as it rewards shareholders while improving the stock’s liquidity.

Pending Bursa and shareholders’ approvals, the bonus issue is expected to be completed by 2Q16. Post-bonus, the share base will increase by 20%. Hence, the current share price will be adjusted from RM5.32 to RM4.26. Our TP will be adjusted accordingly from RM5.88 to RM4.70.

Outlook

Timber outlook is softer than 2015 as prices trended downwards due to weaker economic growth, and foreign buyers are also seeking alternative suppliers due to the strong USD.

However, the Plantation segment’s outlook is positive as we expect higher FY16 CPO prices (+9% to RM2,400/MT), as well as the above-average FFB growth prospect (+15% vs. sector average of +6%).

Forecast

No change to our CNP forecast in FY16-17E.

Rating

Maintain MARKET PERFORM We believe the stock is fairly valued, as stronger Plantation outlook is offset by softer Timber prospects. However, rising CPO prices could sustain investors’ interest.

Valuation

We maintain our TP of RM5.88 (ex-bonus: RM4.70) based on FY16E Fwd. PER of 17.5x. 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 share price support.

Risks to Our Call

Lower-than-expected CPO prices.

Lower-than-expected timber product prices.

Higher-than-expected cost of production.

Source: Kenanga Research - 2 Mar 2016