• Maintain NEUTRAL, with new TP of MYR3.80 from MYR3.70, 1% upside. Ta Ann’s 9M22 earnings deemed in line with our, but were above Street expectations, as we anticipate softer earnings in 4Q due to lower prevailing CPO prices and lower log output due to the wet season. TAH is fairly valued, trading at 6.3x FY23F P/E, in line with peer range of 6-11x.

• We consider 9M22 earnings to be in line with our expectations, but above consensus, at 79% and 84% of FY22F earnings. TAH saw higher ASPs across all segments and higher log and CPO sales volumes, which were offset by lower plywood sales volume. Management declared its fourth interim DPS of 10 sen, bringing 9M22 net DPS to 40 sen, above our forecasted 33 sen/share. We now increase our FY22F DPS to 45 sen/ share or a 55% payout ratio (from 41%).

• The timber unit remained robust, as 9M22 PBT jumped 264% YoY to MYR75.3m, mainly contributed by higher log (+8% YoY) and plywood (+31% YoY) prices and higher log sales (+8% YoY), offset by lower sales volume for plywood (-6% YoY). Although 9M22 log output makes up 79% of our log production forecast, our FY22 log output growth assumption of +29% is maintained as we anticipate slower log harvesting activities in 4Q due to wet weather. YTD-October log production was +33% YoY. On the plywood front, 9M22 sales volume dropped 6% YoY, brought about by a 28% QoQ decline. This was mainly due to timing differences in shipping, and management expects to ship out the backlogged volume in 4Q. Still, we expect this to have an impact on FY22 sales volume. As such, we cut our FY22 sales volume forecast to -3% YoY (from +1%). We also raise our plywood ASP by 12% for FY22F, given the high prices currently.

• FFB output grew +4.1% YoY in 9M22, exceeding our assumptions of +1.4% YoY and management’s guidance of +3% for FY22. TAH’s labour shortage was at 10% as at end-September. It is expecting 300 new workers to come in December and another 400 workers in 1Q23. We maintain our FY22F FFB growth as we expect weaker 4Q22 FFB output, affected by floods in some of its estates.

• CPO ASP realised was MYR4,500 in 3Q22 (+7% YoY), higher than the Malaysian Palm Oil Board (MPOB) ASPs of MYR3,971. We believe this was due to some forward sales done in 3Q22 at MYR5,500/tonne. Forward sales for 4Q22 remains minimal ie less than 10% of 4Q22 production. Moving forward, we believe this segment will be weaker QoQ due to lower prevailing CPO prices.

• We revise our FY22F-23F earnings up by 2-3% to account for lower- than-expected plywood sales volume and higher-than-expected timber products ASP, while our FY24F earnings are maintained.

• Keep NEUTRAL, with a new TP of MYR3.80 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 2023F dividend yield of c.7% should provide support to its share price.

Source: RHB Research - 30 Nov 2022