INVESTMENT HIGHLIGHTS

• Earnings within expectations

• Timber division profitability improved significantly

• Lacklustre performance from plantation division

• Earnings estimates maintained

• Upgrade to BUY with unchanged TP of RM2.76

Earnings within expectations. Ta Ann 9MFY18 core net income (CNI) of RM47.4m was within expectations as it makes for 73%/69% of ours/ consensus full year earnings estimates respectively. The volume for export logs have improved as the Company has been allowed to raise the timber export quota to 40% (from 20%) for Kapit Forest Management Unit (which is certified in early 3Q2018). As expected, a dividend of 5.0 sen was announced.

Timber division profitability improved significantly. Timber division performance improved significantly in 3Q with PBT of RM9.6m (against 2Q PBT of RM3.0m and 1Q Loss Before Tax of RM7.2m). This can be attributed to the surge in timber export volume after the increase in export quota for its Kapit Forest Management Unit. We expect the improvement to be sustained going forward.

Lacklustre performance from plantation division as its 9MFY18 PBT declined 55% yoy to RM69.1m. This was caused by lower CPO price by 18% yoy to RM2235 per tonne while FFB volume declined 4% yoy to 543,339 tonnes.

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

Upgrade to BUY with unchanged TP of RM2.76. Our TP is based on unchanged Forward PER valuation of 15.0x (Mean Valuation). Our upgrade is premised on: i) the outlook for timber division has improved significantly, ii) share price has declined 45% from its peak of RM3.70 on 22-Dec-2017 and iii) its share price is at attractive discount of 35% to its book value of RM3.15.

Source: MIDF Research - 26 Nov 2018