We believe El Nino’s impact on edible oil supply may be one of the largest ever, given its current strength. As such, we lift our 2016 CPO price estimate to MYR2,700/tonne (from MYR2,500). We raise our SOPbased TP to MYR4.65 (from MYR3.90), implying a 22% upside. MaintainBUY, as we expect Ta Ann to continue to benefit from the depreciatingMYR and its growing palm oil hectarage maturity.

Unprecedented impact. We believe El Nino’s impact on edible oil supply may be its biggest ever, given its strength and high global reliance on palm oil. In the last mild El Nino in 2009-2010, the price of palm oil went ballistic as production stagnated. As the current episode is a stronger one and could match the 1997-1998 El Nino, the impact on production could be more severe with Indonesia potentially experiencing a decline in production next year. Unlike the last two episodes, there would be little or no mitigating factor from a rise in oil palm hectarage since Indonesia’s new planting has been slowing in the past few years.

Perfect storm in 2H16. While soybean supply is still healthy, rapeseed crops have already been hit. We believe a perfect storm is due in 2H16 as La Nina weather follows El Nino closely and could bring drought to soybean areas. This could happen while palm oil production is suffering its sharpest yield decline due to the 12 -month drought impact

Raising estimates. We raise our CPO price assumptions for Ta Ann to MYR2,700/tonne for FY16 (from MYR2,500) and MYR2,750 for FY17 (from MYR2,600). We also make no change to our FY15 price assumption of MYR2,200. With that, our earnings have been adjusted upwards by 10-14% for FY16-17.

Maintain BUY. With the earnings revision, our SOP-based TP for Ta Ann rises to MYR4.65 (from MYR3.90). We maintain our target P/E of 15x 2016 for its plantations segment, our DCF valuation for the log division, and a replacement value calculation for its plywood unit. We highlight that every MYR100/tonne change in the price of CPO could affect Ta Ann’s earnings by 7-9%. We maintain our BUY recommendation, as we expect Ta Ann to continue to benefit from the depreciating MYR and its growing palm oil hectarage maturity.