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Maintain NEUTRAL and TP of MYR3.70, 7% downside. We deem Ta Ann’s 1H22 earnings to be in line with our and Street expectations, as we anticipate softer earnings in 2H due to lower prevailing CPO prices as well as lower log output due to the wet season. This stock is fairly valued, trading at 7x FY23F P/E, in line with its peer range of 6-11x.
1H22 earnings were largely in line with expectations, at 52% and 53% of our and Street FY22F earnings, with higher ASPs across all segments and higher plywood sales volumes offset by lower log and CPO sales volumes. Management declared its third interim DPS of 15 sen, bringing 1H22 net DPS to 30 sen.
The timber unit remained robust, as its 1H22 PBT jumped 372% YoY to MYR49.5m, mainly contributed by higher log (+13% YoY) and plywood (+37% YoY) prices and higher plywood sales (+5% YoY), offset by lower sales volume for logs (-11% YoY). We understand that the 10% QoQ decline in log sales volume was due to shipping delays, which were then fulfilled in early 3Q. As 1H22 sales volume makes up 51% of our log sales volume forecast, our FY22 sales volume growth assumption of +6.4% is maintained. However, we cut our log production output growth to a more achievable +29% (from +37%) in anticipation of wet weather in 2H22. YTD-July log production was +32% YoY. Plywood sales, on the other hand, rose 5.3% but significantly missed our +30% forecast. Hence, we cut our plywood sales volume growth forecast to +7.4%.
In 1H22, FFB growth was flattish (+0.3% YoY), slightly below our assumptions of +1.4% YoY and management’s guidance of +3% for FY22. TAH’s labour shortage was at 10% in 2Q22, partly alleviated by the hiring of contract workers. We maintain our FY22F FFB output currently on the assumption that FFB output will be better HoH due to the peak season.
Higher than Malaysian Palm Oil Board (MPOB) CPO ASPs achieved. TAH managed to realise CPO ASP of MYR6,615 in 2Q22 (+60% YoY), higher than the MPOB ASPs of MYR6,533. We believe this was due to the backlog of orders in 1Q22 (due to low external FFBs sourced) being fulfilled in 2Q22, resulting in higher 1Q22 CPO prices being realised in the subsequent quarter. This is in line with the 26% QoQ increase in CPO sales volume in 2Q. Moving forward, we believe this segment will be weaker QoQ due to lower prevailing CPO prices.
We revise our FY22F earnings by -1% to account for lower-than- expected log production as well as lower plywood sales volume while our FY23F-24F earnings are maintained.
Keep NEUTRAL and TP of MYR3.70 based on 8x FY23F P/E, after including a 20% ESG discount based on its ESG score of 2.0. We believe TAH is fairly valued. It is trading in line with its peers, while its 2022F dividend yield of c.8% should provide support to its share price.
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