• Maintain NEUTRAL, with new MYR4.50 TP from MYR4.40, 4% upside. Ta Ann’s 9M24 earnings came in largely in line with our and Street estimates. We expect earnings to remain flattish in 4Q24, supported by higher CPO prices, but offset by lower output. Valuation is fair, trading at 8.2x FY25F P/E, compared to its peer range of 7-11x, while its FY24F c.8% dividend yield continues to support its share price movement.

• 3Q24 core earnings jumped 65% QoQ (+8% YoY), bringing 9M24 core earnings to MYR134m (+8% YoY), at 72-77% of our and Street full-year forecasts. The jump in 3Q24 earnings wasdriven by robust FFB output (+44% QoQ, +3% YoY) as well as lower-than-expected effective tax rate (ETR) of 22.4% in 3Q24 (9M24: 22.8%). Management declared a second interim DPS of 20 sen for FY24F (3Q24: 15 sen), bringing its YTD DPS to 35 sen, which translates to an attractive 8% yield.

• Timber PBT dropped 41% QoQ (-142% YoY) in 3Q24 to -MYR4.8m, mainly due to the weak performance from its plywood sub-segment, but slightly offset by the log division. Log output increased 26% QoQ in 3Q24 (-24% YoY), bringing 9M24 to 142k tonnes (-34% YoY). Despite the tight supply, log ASPs recorded a decrease to USD213/cu m in 9M24 (-16% YoY). Plywood sales volume meanwhile, declined 13% YoY in 9M24 due to lower log outputs, and the sub-segment also saw weaker ASPs of USD503/cu m (-12% YoY). This is likely due to increasing competition amongst plywood manufacturers in Japan. Management reassured however, that the Japan market is at its bottom and will see a recovery in 4Q as companies start to restock their inventory levels. We therefore lift our FY24F plywood sales volume target slightly to -14% from -19% and FY25 – FY26F to +2% from -2 to +1%. We also keep our plywood ASPs estimates of USD510/cu m but reduce log ASPs estimates to USD220/cu m from USD240 in FY24-FY26F.

• Plantation unit’s 3Q24 PBT jumped 84% QoQ (15% YoY) as FFB output rose 44% QoQ (+3% YoY), bringing 9M24 output to +2.6% YoY. In YTD-October, FFB growth moderated to +0.3% YoY, as TAH has hit its peak output in 3Q24. This is lower than our expectation of +3.4% for FY24F. As such, we revise our FFB estimates down to +1% for FY24 and +5% for FY25-FY26F (from 5-6%). We estimate unit costs increased slightly by 5% in 9M24 due to weaker FFB output. We keep our unit costs assumptions of +4% in FY24 unchanged.

• We raise our FY24F-26F earnings by 9%, 3% and 5% as we lower our FFB output growth, interest expense and ETR, while increasing estimates for plywood sales volumes, as well as the company’s share of associate profits.

• Keep NEUTRAL, with a new MYR4.50 TP based on an unchanged 11x FY25F P/E, after imputing a 22% ESG discount based on its ESG score of 1.9 out of 4 (vs our country median of 3). Its valuation remains fair – trading at 8.2x FY25F P/E, vs its peer range of 7-11x.

Source: RHB Securities Research - 26 Nov 2024