INVESTMENT HIGHLIGHTS

• FY17 Core Net Income is within expectation

• FY17 Core Net Income increased marginally by 2% yoy due to strong earnings growth from plantation segment

• Loss in the timber division in 4QFY17

• Maintain NEUTRAL with TP of RM3.40

FY17 Core Net Income is within expectation. Ta Ann FY17 Core Net Income (CNI) of RM120m met expectations as it makes up 99% of ours and 94% of consensus, respectively. Note that our CNI calculation excludes RM6.6m forex gain, RM7.1m writeoffs and other one off items. As expected, no dividend is announced.

FY17 Core Net Income increased marginally by 2% yoy due to strong earnings growth from plantation segment. Plantation segment PBT surged 85% yoy to RM196m. This has more than offset the 98% decline in PBT in the timber segment. Plantation segment benefited from higher CPO price (+14% yoy to RM2741 per tonne) and better FFB production (+13% yoy to 754,711 tonnes).

Loss in the timber division in 4QFY17. Timber division registered Loss Before Tax (LBT) of RM9.5m timber division in the 4QFY17 due to the low volume processed by the plywood division. We gather that the log supply has been affected due to the wet weather in 4QFY17. However, we believe that things should improve from 2QFY18 onwards as the weather has normalized. Overall outlook for timber division is neutral as the low volume is neutralised by better price of export logs.

Maintain NEUTRAL with TP of RM3.40. Valuation method is unchanged based on 12.5x Forward PER which reflects a -0.5 Standard Deviation (-0.5SD). The -0.5SD valuation is to reflect the challenging market condition for the timber segment. We are overall NEUTRAL on Ta Ann as the good earnings prospect from the plantation segment is neutralised by the challenging prospect in the timber segment.

Source: MIDF Research - 1 Mar 2018