• Still NEUTRAL, with new MYR2.95 TP from MYR3.40, 8% downside. Ta Ann’s 1Q23 earnings came in below our and Street estimates, due to lower-than-expected plywood performance. At this juncture, we believe the stock is fairly valued – trading at 7x FY23F P/E – in line with its peer range of 7-8x, while its c.8% yield should provide some support.

• 1Q23 core earnings of MYR36.1m (-52% YoY) missed our and consensus expectations, at 15-19% of full-year forecasts. The deviation mainly came from lower-than-expected sales volumes of CPO and plywood, plywood ASP and associate profit. Regardless, TAH declared its first interim DPS of 10 sen for FY23 (1Q22: 15 sen).

• The timber unit’s PBT fell 25% YoY to MYR16.9m in 1Q23, mainly dragged by the underperformance of its plywood division, which recorded a 48% decline in sales volume, while its 1Q23 price fell 7% YoY. We understand that plywood buyers slowed down their purchasing activities to keep stock levels prior to the closing of accounts in March. Plywood performance should remain weak in 2Q given Japan’s golden week holidays in early May but should see better performance in 2H. Log sales volume rose 13% YoY, likely due to supply of logs from Suriname and Solomon Islands being redirected to China, resulting in less competition in India. We maintain our log sales volume and ASP assumptions.

• Oil palm’s 1Q23 PBT dropped 58% YoY on the back of lower CPO ASPs (-33% YoY) while FFB output fell 3.8% YoY, below management’s guidance of +16% and our forecast of +7% for FY23. In 4M23, FFB output growth worsened to -7.7% YoY, due to the festive holidays. Management remains committed to its FY23F output growth of +16% YoY. We keep our +7% growth forecast in anticipation of better output in 2H.

• CPO ASP realised was MYR3,890 in 1Q23 (-33% YoY), in line with our FY23 forecast of MYR3,900. Given TAH’s earnings sensitivity to CPO prices, we believe this segment in the coming quarters will continue to be weaker YoY due to lower prevailing CPO prices. We make no changes to the segment at this juncture.

• We cut FY23F-24F earnings by 10-12% as we lower plywood ASP and sales volume, a share of associates’ profits and impute revised FX assumptions.

• NEUTRAL, with a new MYR2.95 TP based on an unchanged 8x FY23F P/E, after including a 24% ESG discount based on its ESG score of 1.8. TAH remains fairly valued, and is currently trading within its peer range.

• ESG framework update. As there is now greater focus on the E pillar due to critical climate change issues, we have tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note titled Envisioning a Better Future.

Source: RHB Research - 25 May 2023