9MFY20 CNP of RM65.0m (+76% YoY) is deemed within our (60%) but above consensus’ (87%) estimates. Historically, 4QFY accounted for 37% (2-year average) of full-year earnings. 9MFY20 DPS of 10.0 sen was a positive surprise. Our FY20-21E CNP is 46-26% higher than consensus and we anticipate earnings upgrade from the street post- results. We expect a strong finish to FY20 – as higher CPO price offsets lower production in 4QFY20, while timber division could return to the black. No changes to earnings estimate, but raise FY20- 21E DPS by 2.0-1.0 sen. Maintain OUTPERFORM with TP of RM3.45 based on FY21E PER of 13x reflecting mean. At current share price, TAANN is traded at an attractive FY21E PER of only 11.7x (at c.47% discount to peers).

Deemed within our estimate, but above consensus’ expectations. 3QFY20 Core Net Profit (CNP) came in at RM41.2m (+285% QoQ; +69% YoY), bringing 9MFY20 CNP to RM65.0m (+76% YoY). This is deemed within our expectation at 60%, but above consensus’ estimates at 87%, premised on another strong quarter in 4QFY20. As illustration, historically, 4QFY accounted for 37% (2- year average) of full-year earnings. 9MFY20 FFB output is also within expectation at 72% (2-year average: 75%). However, 9MFY20 DPS of 10.0 sen came as a positive surprise to our FY20E DPS of 8.0 sen.

Upstream shows strength. YoY, 9MFY20 CNP leapt (+76%), mainly driven by plantation segment on the back of higher CPO prices (+28%) and higher CPO production (+9%). This resulted in significant plantation PBT improvement (+114%) alongside plantation PBT margin expansion (+6.1ppt). QoQ, 3QFY20 CNP rose (+285%), also mainly boosted by plantation segment on the back of: (i) higher CPO price (+15%), and (ii) higher FFB/CPO production (+32%/+27%). Timber division’s LBT narrowed (-60%) to RM3.0m as a decline in plywood volume (-41%) was overshadowed by: (i) an increase in export logs volume (+86%), (ii) higher export logs prices (+5%), and (iii) higher plywood prices (+2%).

Expect a strong finish to FY20. The group views CPO price at >RM3,000/MT as sustainable in the near-term, allowing the group to benefit from even higher prices in 4QFY20. However, peak production for Malaysia is widely believed to be over. This is evident from the group’s FFB output decline (-9% MoM; -15% YoY) in Oct 2020. That said, premised on higher CPO price realised offsetting lower production, we believe the group’s 4QFY20 earnings could be similar to 3QFY20. Meanwhile, recovery of logs prices in India and improvement in plywood demand in Japan could return timber division to the black.

No changes to earnings estimate as results are within expectations. However, we raised FY20-21 DPS by 2.0-1.0, respectively. We highlight here that our FY20-21E earnings are 46-26% higher than consensus and that earnings upgrade post-results should follow.

Maintain OUTPERFORM with an unchanged TP of RM3.45 based on FY21E PER of 13x, reflecting mean valuation. At current price, TAANN is traded at FY21E PER of merely 11.7x (at c.47% discount to peers), which we think is attractive. We like the company for its: (i) strong earnings outlook, (ii) high possibility of consensus earnings upgrade in the coming months, (iii) and subsiding risks from its timber division (improving price and demand). Risks to our call include: (i) change in export log quota, (ii) significant deterioration of export log prices, and (iii) re-imposition of lockdowns.

Source: Kenanga Research - 1 Dec 2020