1HFY21 CNP of RM93.3m is above our (91%) and consensus (73%) expectations due to higher CPO prices. Stronger CPO prices andfirm production should lift plantation segment in 3QFY21. However, lockdowns and rising freight rates could drag its timber division. Raise FY21-22E CNP by 72-20%. Maintain MP with higher rolled-over SoP-derived TP of RM2.85 (from RM2.80). ESG score is at 42%.

Above expectations. 1HFY21 Core Net Profit (CNP) came in at RM93.3m (+296% YoY) which is above our/consensus’ expectations at 91%/73% due to higher CPO prices. 1HFY21 FFB output of 293k MT (-5% YoY) is at 42% of our full-year estimate. Absence of dividend is as expected.

Results’ highlight. YoY, 1HFY21 CNP leapt (+296%) mainly due to a 245% improvement in plantation PBT stemming from stronger average CPO price (+64%) which overwhelmed lower FFB output (-5%). QoQ, in a similar manner, 2QFY21 CNP rose (+128%) attributable to better plantation PBT on higher average CPO price (+10%), and better FFB output (+15%).

Continued upstream strength in 3QFY21. The group’s plantation division should continue to see sequential improvement in 3QFY21 from higher CPO prices (QTD 3QFY21: +4%) and firm production. However, strict lockdowns in Malaysia and India could weigh on its timber division. Note that India is the group’s largest buyer of export logs (82% in FY20). Additionally, rising freight rates could hamper the outlook. The Baltic Dry Index is up 25% QoQ.

Raise FY21-22E CNP by 72-20% on higher CPO price of RM3,700-3,200/MT (from RM3,000/MT).

Maintain MARKET PERFORM with a higher rolled-over SoP-derived TP of RM2.85 (from RM2.80). TAANN is currently traded at FY22E PER of 9.3x, implying -0.5SD from mean, which we think is fairly valued. Its upstream peers (without timber volatility) are traded at below -0.5SD levels. TAANN also has the lowest ESG score among our coverage at 42%.

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 Sept 2021