FY18 CNP came in at RM82.6m meeting our forecast at 98% but above consensus forecast at RM118%. No dividend was announced, bringing full-year DPS to 10.0 sen, meeting our full-year forecast of 10.0 sen. Adjust up FY19E CNP by 5% to RM91m as we introduce FY19E CNP of RM119m. Maintain MARKET PERFORM with higher TP of RM2.50 (from RM2.35).

FY18 meets consensus. FY18 CNP came in at RM82.6m, meeting our forecast at 98% of RM84m but above consensus’ forecast at RM118% of RM70.1m. FFB production at 727k metric tons (MT) came close to our 773k MT forecast at 94%. No dividend was declared in this quarter, as expected. This is because TAANN normally pays its dividend during the 1Q and 3Q. This brings full-year DPS of 10.0 sen meeting our full-year forecast of 10.0 sen. This implies a pay-out ratio of 55% and dividend yield of 4.0%.

Plantation outpaces Timber. YoY, CNP down (-35%) to RM82.6m dragged by weaker Plantation PBT (-37%) on lower CPO ASPs (-22%) at RM2,128/MT that led to margins compression. Timber division came in stronger with increased PBT (+22%) lifted by higher export logs’ ASP (+14%) to USD321/m3 and plywood (+21%) to USD554/m3 offsetting the sharp decline in sales volume as a result of government export quota limits and tightened logging standards. (log: -29% to 43.0k m3; plywood: -16% to 120.1k m3). QoQ, 4Q18 CNP softened to RM31.7m (-3%) largely on weaker exported logs prices (-11%) to USD286/MT and CPO prices (-13%) to RM1,821/MT. Notably, timber division registered loss before tax (LBT) at RM0.5m despite, increase in exported logs volume (+41%).

Outlook. We continue to expect stronger plantation contributions in 2H18 driven by higher production on better FFB and CPO sale volumes despite softer CPO price outlook, which remains a challenge. TAANN has completed the first phase of its on-going timber certification programme, of which 40% of the 149,756 ha certified concession areas are allowed for exports. In addition, two more FMUs certification over a total forestland of 196,187 ha will be completed by 2H19. Despite depreciating log prices, we note that TAANN’s exported logs prices are highly dependent on the mixed timber species commanding premium margins leading to better profitability. We also expect the group plantation business to register improvement on the back of recovering CPO prices.

Adjust up FY19E CNP by 5% to RM91m as we introduce FY19E CNP of RM119m. We tweak our FY19E CNP slightly higher to account for its potential increase in exported logs volume, which is expected to roll out in 2H19. We also introduce our FY20E CNP implying only 31% YoY earnings growth as we anticipate the on-going timber certification will fully come into effects by FY20E (please refer overleaf for details).

Maintain MARKET PERFORM with higher TP of RM2.50 (from RM2.35) based on unchanged Fwd. PER of 12.3x FY19E EPS of 20.3 sen. Our TP of RM2.50 implies a Fwd. PER of 12.3x, in line with the 3- year average (vs. other planters which are mostly pegged at -0.5 to -2.0 SD) due to potential new timber contributions. While we are positive on the group’s overall outlook, we maintain our MARKET PERFORM call for now accounting for the continuous uncertainty plaguing the timber industry following the statement by Sarawak Deputy Chief Minister, to banning logs export going forward.

Source: Kenanga Research - 01 Mar 2019