Ta Ann Holdings Berhad (TAANN) reported 9M17 Core Net Profit (CNP*) of RM97.9m, coming in broadly within both consensus forecast at 76% and ours at 73%. No dividend was announced, as expected. No change to our earnings estimates. Maintain MARKET PERFORM with updated TP of RM3.60 (from RM3.50) based on updated Fwd. PER of 13.0x (from 12.6x).

9M17 broadly within consensus. TAANN’s 9M17 CNP at RM97.9m is broadly within consensus’ RM128.9m estimate at 76%, and within our expected RM133.7m at 73%. FFB production at 742.5k metric tons (MT) was in line, at 75% of our estimate. No dividend was announced, as expected, although we note that year-to-date dividend of 10.0 sen is already slightly above 9M16 adjusted DPS of 9.2 sen by 9%.

Plantation segment doubles. YoY, CNP improved 4% as Plantation PBT contribution doubled to RM153.4m thanks to stronger CPO prices (+16%) and higher FFB production (+13%). This was offset, however, by weaker Timber performance (-81%) as tighter logging regulations led to a sharp drop in log volume (-50%) and softer plywood production (-19%) which could not be supported by better export log prices (-17%). QoQ, CNP softened 26% as Plantation PBT was flat in spite of better FFB production (+18%) due to softer CPO prices (-3%). Meanwhile, the Timber segment reversed into loss before tax (LBT) of RM5.3m despite better export volumes of logs (+25%) and plywood (+2%), which we believe is due to higher cost of certification and lower export quotas (20% as of Jul 2017, from 30% previously).

Pivoting towards palm. We continue to expect stronger Plantation contributions in 2H17 to make up for weak YoY timber volumes. We expect to see continued FY17-18E FFB growth at 11-13% which should partly offset a softer price outlook next year as industry-wide production recovers. Meanwhile, for Timber, management plans to increase its use of plantation and certified wood components to offset tighter state regulations. With log prices gradually adjusting upwards to compensate for tighter supplies, we expect the Timber sector to see some improvement heading into 2018. However, a weaker USD could be a risk to the sector given the high export focus of timber players.

Maintain FY17-18E CNP at RM134-124m as results are in line with our expectations.

Reiterate MARKET PERFORM with higher TP of RM3.60 (from RM3.50) based on unchanged FY18E EPS of 27.8 sen as we update our Fwd. PER to 13.0x (from 12.6x) based on an unchanged mean valuation basis. We believe this is fair, as we expect stronger full-year Plantation performance to be offset by poor timber contributions due to higher premium and lower volumes. Meanwhile, gradual log price recovery could be offset by a weaker USD over the medium term. Thus, we maintain our MARKET PERFORM call on the stock.

Source: Kenanga Research - 29 Nov 2017