The leveraged effect of the MYR weakness on Ta Ann’s earnings has far surpassed expctations in 3Q15, with 9M15 results making up 115-125% of FY15 forecasts. Maintain BUY with a higher SOP-based MYR5.20 TP(from MYR4.65, 27% upside). Given the even weaker MYR/USD rate currently, we expect it to continue benefiting in the next few quarters.

Beat expectations by a mile. 9M15 core net profit was above our and consensus expectations, at 115-125% of FY15 forecasts. This was mainly due to the leveraged impact of the weakening MYR/USD exchange rate (11% QoQ, 17% YoY), as 60-65% of Ta Ann’s earnings are in USD. This pushed EBIT margins to 24% (vs our 18% FY15F). Ta Ann recorded an EI gain of MYR9.2m for forex gains on foreigndenominated cash assets. Ta Ann declared a second interim net DPS of 10 sen in 3Q, bringing total DPS to 20 sen. We do not expect another dividend in 4Q15.

9M15 core net profit up 50%. 9M15 core net profit rose 50% YoY on the back of a 5% rise in revenue. The timber division’s PBT grew 42% YoY in 9M15, attributed to higher log prices (+10%) and the impact of the strong USD, offset by lower log sales volume (-21%), lower plywood sales volume (-8%), and lower plywood prices (-4%). The plywood division chalked up a very strong profit this quarter (+327% QoQ), driven by the exchange rate weakening. The plantation division’s 9M15 PBT fell 9% YoY, as CPO prices dropped 10% YoY, offset by a higher FFB production volume growth of 10% YoY.

Forecasts raised. We raise our earnings forecasts by 62% for FY15 and 30% for FY16, after reducing our unit production cost assumptions to take into account the leverage effect of the exchange rate weakness. We highlight that our MYR/USD exchange rate assumptions are unchanged at MYR3.90/MYR4.30/MYR4.20 for FY15/FY16/FY17 respectively. We highlight that every MYR0.10/USD change in exchange rate could increase Ta Ann’s net earnings by c.10-12%, while every MYR100/tonne change in CPO prices could affect its earnings by 7-9%.

Maintain BUY. Our SOP-based TP for Ta Ann is raised to MYR5.20. We maintain our target P/E of 15x 2016F for its plantations segment, our DCF valuation for the log division, and a replacement value calculation for its plywood unit. We maintain our BUY recommendation, as weexpect Ta Ann to continue to benefit from the depreciating MYR and its growing palm oil hectarage maturity.