INVESTMENT HIGHLIGHTS

• Awarded Certificate for Forest Management

• Two more FMUs to be certified in 2019 and 2020

• We are neutral on the news

• Earnings estimates unchanged

• Maintain SELL with TP of RM2.30

Awarded Certificate for Forest Management. Ta Ann Holdings Berhad (TAANN) has announced that its Kapit Forest Management Unit (FMU) has been awarded the Certificate for Forest Management (Natural Forest) under the Malaysian Timber Certification Scheme (MTCS). The certification is valid for 3 years and the area covered is 149,756 ha (or 40% of TAANN total concession area). This is the first FMU for TAANN to attain sustainable forest management certification under MTCS.

Two more FMUs to be certified in 2019 and 2020. TAANN also mentioned that the Forest Management Plans for another 2 FMUs have been approved by Forest Department Sarawak (FDS). We gather that Raplex FMU is expected to be certified by 2019 whereas Pasin FMU is targeted to be certified by 2020.

We are neutral on the news. We believe that TAANN should be able to increase its production of certified plywood products following the certification. However, earnings impact is likely to be minimal in the near term as plywood products margin tend to be small.

Earnings estimates maintained. We maintain our core earnings estimate of RM64.6m for FY18. For FY19, our core earnings estimate is unchanged at RM81.8m.

Maintain SELL with TP of RM2.30. Our Target Price is based on 12.5x Fwd. PE on FY19F earnings reflecting -0.5SD valuation. Maintain SELL call due to weak earnings prospect for both plantation and timber segment in the near term.

Source: MIDF Research - 9 Jul 2018