INVESTMENT HIGHLIGHTS

• 1HFY18 Core Net Income is deemed to be within expectations

• Timber division returned to profitability in 2Q

• Lacklustre performance from plantation division

• Earnings estimates maintained

• Upgrade to NEUTRAL with TP of RM2.76

1HFY18 Core Net Income is deemed to be within expectations. Ta Ann 1HFY18 core net income (CNI) of RM17.2m is deemed to be within expectations. Although it makes up only 27%/22% of our/consensus full year earnings estimates, we are expecting a much stronger 2H earnings. The volume for export logs should increase as the Company has been allowed to raise the timber export quota to 40% (from 20%) for Kapit Forest Management Unit (which is recently certified). As expected, no dividend was announced.

Timber division returned to profitability in 2Q. Timber division performance improved significantly in 2Q with PBT of RM3.0m (against 1Q Loss Before Tax of RM7.2m). We gather that export log prices volume jumped 34%qoq with better prices (+2%qoq to USD 367 per m3). Plywood price also increased by 6%qoq to USD 553 per m3. The outlook for timber division is better in 2H due to higher export volume expected from its Kapit Forest Management Unit.

Lacklustre performance from plantation division as its 1HFY18 PBT declined -70%yoy to RM29.4m. This is caused by lower CPO price by -18%yoy while FFB volume declined -7%yoy.

Earnings estimates maintained. FY18/FY19 CNI are maintained at RM64.6m/RM81.8m.

Upgrade to NEUTRAL with TP of RM2.76. We have increased our Forward PER valuation to 15.0x (from 12.5x) as we upgrade our valuation to Mean level (from -0.5 Standard Deviation). This is caused by the improved outlook from its timber division. However, the outlook for its plantation division remains unexciting due to low CPO price currently. Hence our NEUTRAL recommendation for the stock.

Source: MIDF Research - 30 Aug 2018