• Still BUY, new MYR4.15 TP from MYR4, 14% upside with c.8% FY24F yield. Ta Ann’s FY23 earnings largely met our and Street estimates. We believe this counter remains undervalued at 6.7x FY24F P/E vs the peer range of 7-12x, while its FY24F c.8% dividend yield offers an additional sweetener.

• FY23 core earnings of MYR172.7m (-49% YoY) largely met our and Street expectations, at 96% of full-year forecasts. No 4Q23 dividend was declared, implying a FY23 core payout ratio of 64% and net yield of c.7%.

• Timber unit’s PBT plunged 76% QoQ to MYR2m in 4Q23, bringing FY23 PBT down by 53% YoY. A weak ASP for logs (-16% QoQ) resulted in a MYR2.4m loss for the sub-segment, while the lower volumes sold (-51% QoQ) was due to delay of exports in anticipation of better prices in 1Q24. This is evidenced by higher prices transacted in Jan 2024, of USD250 per cu m (vs USD190 in 4Q23). While the jump in 4Q23 plywood sales volumes (+67% YoY) was due to importers stocking up their inventory post lukewarm demand in 2H22 and 1H23 (below c.20k cu m mark per quarter), this remains relatively weak vs pre-pandemic levels of c.35k cu m per quarter – likely due to the weakening JPY (-7% YoY in 2023).

• Plantation unit’s 4Q23 PBT fell 13% QoQ (-18% YoY) as FFB output declined by 7% QoQ (-0.4% YoY), bringing FY23 PBT to MYR265.8m (-44% YoY). The FY23 YoY decrease in earnings was mainly due to lower CPO ASPs (-9% YoY) while FFB output dropped 3.8% YoY, ie below management’s guidance of +12% YoY but in line with our forecast of -3.7% YoY. In 1M24, FFB output growth saw a 1% uptick YoY but fell 12% MoM due to the low crop season. While management is guiding for 13% FFB growth, we prefer to be more conservative and retain our 7.8% FFB output growth forecast .

• TAH’s realised CPO ASP FY23 was MYR3,707/tonne (-26% YoY), which was below our FY23 forecast of MYR3,900 while 4Q23 unit cost was flattish QoQ in line with flattish QoQ production. Management is optimistic that the timber segment will chalk better earnings in 1Q24, mainly on the back of better log ASPs and volumes, while the oil palm division should record weaker QoQ results due to seasonality.

• We lift FY24-25F earnings by 3-4%, mainly due to housekeeping adjustments. On top of that, we introduce our FY26F earnings in this report, with a CPO assumption of MYR3,800/tonne.

• Keep BUY, with a new MYR4.15 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.8% serves as an additional sweetener.

Source: RHB Securities Research - 29 Feb 2024