FY20 CNP of RM63.6m (+2% YoY) is below both our/consensus’ expectations (at 58%/66%) due to lower FFB output and plywood ASP as well as export logs sales volume. FY20 DPS of 15.0 sen was a positive surprise. 1QFY21 is likely to remain weak (being the seasonally weakest production quarter). Cut FY21E CNP by 27%. Introduce FY22E CNP of RM95m. Downgrade to MP with lower SoP- derived TP of RM3.00 (from RM3.45). At current price, TAANN’s valuation (FY21E PER of 15x) is on par with peers with superior earnings growth.

Below expectations. 4QFY20 Core Net Loss (CNL) came in at RM1.4m, bringing FY20 Core Net Profit (CNP) to RM63.6m (+2% YoY) which is below both our/consensus’ expectations at 58%/66%. The deviation is due to: (i) lower-than-expected FY20 FFB output of 710k MT (-5% YoY; 95% of our full- year estimate), (ii) lower-than-expected plywood ASP of USD471/m3 (vs. USD520/m3), and (iii) lower-than-expected export log sales volume of 95,000 m3 (vs. 105,000 m3). However, FY20 DPS of 15.0 sen came as a positive surprise to our FY20E DPS of 10.0 sen.

Results’ highlight. YoY, FY20 CNP crept higher by 2%, due to stronger CPO price (+29%) negating: (i) lower export logs/plywood ASP (-10%/-12%), and (ii) lower FFB output (-5%). QoQ, despite higher CPO price (+19%), 4QFY20 sank into CNL of RM1.4m (vs. CNP of RM41.2m in 3QFY20) attributed to: (i) lower plywood ASP (-6%), (ii) lower export logs sales volume (-37%), and lower FFB output (-25%).

1QFY21 to remain weak. We think its palm division is likely to see impact of higher CPO price (+15%) negated by seasonally lower FFB output. Note that the group’s output is typically the lowest in 1Q, accounting for only 19% of its full-year output. Meanwhile, we think its timber division could improve in 1QFY21 premised on higher plywood ASP of c.USD500/m3 and expected improvement of export logs volume.

Cut FY21E CNP by 27% as we lower: (i) FFB output by 5%, (ii) plywood ASP to USD480/m3 (from USD530/m3), and (iii) export log volume to 109k MT (from c.115k MT). We also introduce FY22E CNP of RM95m.

Downgrade to MARKET PERFORM with a lower SoP-derived TP of RM3.00 (from RM3.45). At current price, TAANN is traded at FY21E PER of 15.1x, which is akin to peers with similar if not superior earnings growth that are also not weighed down by timber business like TAANN. At this juncture, we think TAANN’s operational improvements have been more or less priced-in – warranting a MARKET PERFORM call.

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 - 23 Mar 2021