Investment Highlights

• 9MFY17 Core Net Income is within expectation

• 9MFY17 Core Net Income improved by 6% yoy

• Plantation division contributed 93% of the Group’s PBT while timber division contribution is 7%

• Loss in the timber division in 3QFY17 is expected to be temporary

• Maintain BUY with TP of RM4.50

9MFY17 Core Net Income is within expectation. Ta Ann Holdings (TAANN) 9MFY17 Core Net Income (CNI) of RM92.7m is within expectation as it made up 77% and 72% of ours and consensus full year FY17 earnings estimate. As expected, no dividend is announced.

9MFY17 Core Net Income increased 6% yoy. Plantation division PBT improved 99% yoy to RM153.4m as it benefited from better CPO price (+14% yoy to RM2723 per MT) and higher FFB production (+15% yoy to 565,614 MT). Plantation division is the biggest earnings contributor with PBT of RM153.4m (93% of the Group’s).

Timber division earnings declined 81% yoy but its contribution is small. Timber division PBT was down 81% yoy to RM11.2m and the timber division registered Loss Before Tax of RM5.3m in the 3QFY17. We gather that this is caused by the delay in shipment of the products in the plywood division. Hence, we expect things to normalize in 4QFY17 and the division should remain return to a profitable position. PBT contribution from timber division remains small at RM11.2m (7% of the Group).

Maintain BUY with TP of RM4.50. CNP estimates for both FY17 and FY18 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% and ii) timber division outlook is challenging but remains profitable.

Source: MIDF Research - 29 Nov 2017