FY19 CNP of RM69.1m (-20% YoY) came in above both our (108%) and consensus’ (114%) expectations due to higher than-expected logs sales volume. FY19 FFB output (96%) and DPS of 5.0 sen matched expectations. We are banking on a sequential earnings improvement in 1QFY20, mainly contributed by plantation on higher CPO price (QTD- 1QFY20: +14%) despite a potential dip in FFB output. Fine tune FY20E CNP by +1% and introduce FY21E CNP of RM149m. Maintain OUTPERFORM with an unchanged TP of RM4.15 based on CY20E PER of 13.3x (+1SD).

FY19 results above expectations. 4QFY19 Core Net Profit (CNP) came in at RM32.2m (-11% YoY; +32% QoQ), bringing FY19 CNP to RM69.1m (-20% YoY), which is above both our/consensus’ estimates at 108%/114%. The positive deviation came from higher-then-expected export logs sales volume of 94.5k m3 (vs. our expected: 85k m3). FY19 FFB output of 748k MT (96%) and FY19 DPS of 5.0 sen are within our expectations.

Plantation comes through. YoY, despite a 2% increase in FFB output, FY19 CNP slipped (-20%) dragged by: (i) lower average prices for export logs/plywood (-33%/-4%), and (ii) lower average CPO prices (-5%). QoQ, 4QFY19 CNP improved (+32%) on the back of higher average CPO price (+19%). The impact of higher CPO price would have been more pronounced if not for the precipitous fall (-28%) in FFB output due to the dry weather, which drove CPO production cost per MT higher. Note that we have excluded charges for PPE written off to arrive at our 4QFY19 CNP.

Banking on plantation to deliver sequential improvement. We expect to see sequential earnings improvement in 1QFY20 from plantation premised on higher CPO prices (QTD 1QFY20: +14% QoQ). Meanwhile, we gathered that the second phase of TAANN’s Forest Management Unit (FMU) certification (Raplex and Pasin) over a total forest land of 196.2k ha is on-going, and is expected to be completed by 1HCY20.

Fine-tune FY20E CNP (+1%) on housekeeping and introduce FY21E CNP of RM149m on 3% FFB growth.

Maintain OUTPERFORM with an unchanged Target Price of RM4.15 based on CY20E PER of 13.3x (reflecting +1.0SD from mean), justified by: (i) higher CPO price, (ii) potential of strong sequential earnings improvement, and (iii) decent dividend yield of 3.4%. Note that among our smaller planters coverage, TAANN is one of the more profitable ones even under during a depressed CPO price environment.

Risks to our call include: (i) lower-than-expected CPO prices, (ii) further limits on log exports, (iii) weaker-than-expected FFB production

Source: Kenanga Research - 2 Mar 2020