• 1HFY17 Core Net Income is within expectation

• 1HFY17 Core Net Income jumped 54% yoy as plantation division PBT surged 279% yoy

• Plantation division contributed 86% of the Group’s PBT

• Timber division earnings declined 47% yoy but its contribution is small at 14%

• Maintain BUY with TP of RM4.30

1HFY17 Core Net Income is within expectation. Ta Ann Holdings (TAANN) 1HFY17 Core Net Income (CNI) of RM68.9m is within expectation. Although it made up 60% and 55% of ours and consensus full year earnings estimate, we are expecting weaker performance from timber segment in 2HFY17. We believe that the reduction in export quota to 20% (from 30%) will affect the timber division from 3QFY17 onwards. As expected, a 5.0 sen dividend is announced (Ex-date: 6-Sep- 2017)

1HFY17 Core Net Income jumped 54% yoy as plantation division PBT surged 279% yoy. Plantation division PBT improved 279% yoy to RM98.9m as it benefited from better CPO price (+19% yoy to RM2826 per MT) and higher FFB production (+14% yoy to 323,932 MT). Plantation division is the biggest earnings contributor with PBT of RM98.9m (86% of the Group’s).

Timber division earnings declined 47% yoy but its contribution is small. Timber division PBT was down 47% yoy to RM16.5m as the volume of export logs dropped by 48% yoy and this has more than offset the 19% increase in price to USD261 per m3. Looking ahead, the decline in volume is expected to intensify due to the reduction of log export quota from 30% to 20% (from 1-July onwards). Having said that, we are not overly concerned as timber division PBT is only RM16.5m representing 14% contribution to the Group.

Maintain BUY with TP of RM4.30. Earnings estimate are maintained. Valuation method is unchanged based on 16.6x Forward PER (mean valuation). We like the stock as i) its plantation division earnings growth should remain strong due to high FFB growth expected at 10%, ii) timber division outlook is challenging but remains profitable and iii) it is a key laggard among plantation stocks as its YTD share price decline of 12.2% trailed KL Plantation Index +0.7% despite its decent fundamentals.

Source: MIDF Research - 23 Aug 2017