INVESTMENT HIGHLIGHTS

• 1QFY18 Core Net Income is below expectation due to lower than expected volume of export logs

• 1QFY18 Core Net Income dropped 86% yoy to RM4.7m

• FY18 CNI estimate cut by 27% to RM83.7m

• Downgrade to SELL with TP of RM2.35 1QFY18

Core Net Income is below expectation. Ta Ann 1QFY18 Core Net Income (CNI) of RM4.7m was below expectations as it makes up only 4% of ours and consensus full year earnings estimates. The negative deviation is caused by lower than expected volume of export logs which has declined 71% yoy. As expected, a 5.0 sen dividend is announced which is flat yoy.

1QFY18 Core Net Income dropped 86% yoy to RM4.7m. Plantation segment PBT declined 78% yoy to RM9.6m. This is caused by lower CPO price by 19% yoy while FFB volume declined 10% yoy. Timber division was registering Loss Before Tax of RM7.2m. This is caused by significantly lower export logs by 71% yoy.

FY18 CNI estimate cut by 27% to RM83.7m. For FY19, our CNI estimate is reduced by 25% to RM90.8m. We have reduced our eport logs volume assumption by 35% for both FY18 and FY19.

Downgrade to SELL with TP of RM2.35. The lower TP is due to lower Core EPS estimate for FY18 in line with CNI estimate reduction. Valuation method is unchanged based on 12.5x Forward PER which reflects a -0.5 Standard Deviation (-0.5SD). Overall, we believe that FY18 will be a challenging year for Ta Ann (especially its timber division). While we expect the Company to remain profitable, we expect its FY18 CNI to decline by 30% to RM83.7m.

Source: MIDF Research - 25 May 2018