• Still BUY, new MYR4 TP from MYR4.10, 14% upside. Ta Ann’s 9M23 earnings largely met our and Street estimates, as we anticipated a seasonally stronger 2H – given the peak output season. We believe this counter remains undervalued at 6.7x FY24F P/E vs the peer range of 7- 12x, while its FY24F c.9% dividend yield provides another sweetener.

• 9M23 core earnings of MYR124m (-55% YoY) largely met our and Street expectations, at 70-72% of full-year forecasts. Management declared a second interim DPS of 15 sen for FY23 (3Q22: 25 sen), bringing its YTD DPS to 25 sen, which translates to a 61% payout ratio or 7% yield.

• Timber unit’s PBT plunged 68% YoY to MYR8.2m in 3Q23, bringing 9M23 PBT down by 56% YoY. 3Q23 earnings were mainly dragged by lower ASPs for both logs and plywood, offset by higher plywood sales. Plywood ASP fell 27% YoY while its sales volume rose by 41% YoY. We believe the jump in demand was due to importers stocking up their inventory after a few quarters of weak orders (below the 20k cu m mark). That said, the demand for plywood remains relatively weak vs pre-pandemic levels (c.35k cu m per quarter), likely due to the weakening JPY (YTD: -12% YoY). The demand for logs remains robust, as TAH’s sales volume rose 16% YoY, while log output weakened 20% YoY.

• Plantation unit’s 3Q23 PBT jumped 91% QoQ (-29% YoY) as FFB output rose 47% QoQ (-1% YoY), bringing 9M23 PBT to MYR183.0m (-51% YoY). The 9M23 YoY decrease in earnings was mainly due to lower CPO ASPs (-30% YoY) while FFB output fell 5% YoY, ie below management’s guidance of +12% YoY and our forecast of -3.7% YoY for FY23. In 10M23, FFB output growth slightly improved to -4.2% YoY, as the high output season has begun. As 10M23 FFB output makes up 82% of our FY23 forecast, we maintain our -3.7% growth assumption but lift our FY23 CPO sales volume assumption to reflect its 3Q performance.

• 4Q23 should be a strong quarter. TAH’s realised ASP for its CPO in 9M23 was MYR3,761/tonne (-30% YoY), which was below our FY23 forecast of MYR3,900 while unit cost in 3Q23 is likely to be lower QoQ due to strong production. Its 4Q23 results should soften QoQ, but outpace 1Q and 2Q numbers due to seasonal factors. The timber segment is likely to remain subdued due to weaker log and plywood prices.

• We adjust our FY23-25F earnings by -3% to +1% as we lower our assumptions on log and plywood ASPs, while increasing estimates on log and plywood sales volumes, as well as its share of associate profits.

• Keep BUY, with a new MYR4 TP based on an unchanged 10x FY24F P/E, after imputing a 24% ESG discount based on its ESG score of 1.8 out of 4 (vs our country median of 3). We recommend investors to BUY TAH for its inexpensive 6.7x FY24F P/E (peer range: 7-12x P/E), while its FY24F yield of c.9% serves as an additional sweetener.

Source: RHB Securities Research - 29 Nov 2023