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Monday, December 15, 2014

Ta Ann - Riding On FFB Production Growth

We continue to expect decent performances from Ta Ann over the next two years backed by i) encouraging FFB production growth, ii) higher average CPO prices and iii) recovery of its timber arm, which has been suffering for the last 3 years. We also expect a more solid balance sheet and better dividend payout going forward as capex will start reducing due to the completion of new plantings. Management has recently started improving its dividend payout this year with a DPS of 20sen compared to 5sen last year. At current levels, it gives an attractive dividend yield of 5.5% with a potential upside of 34%.

Plantation segment will still be the key earnings growth driver. Plantation segment will remain the major earnings growth driver for the Group next year. We project another double-digit growth in 2015 spurred by the strong FFB production growth apart from the recovery in CPO prices, which will also help reduce its operating costs significantly. The commendable jump in FFB growth is mainly led by the 2k-4k ha of current immature landbank, which will turn into maturity in the next 2 years as well as its young age profile of its plantations land, averaging only 7 years old.

Expecting steady timber business. We also project that timber earnings will remain solid, mainly backed by steady earnings contribution from timber and plywood segments. Meanwhile, we also expect timber product prices, namely, log and plywood, to go up by 4-5% spurred by the recovery of demand in Europe. However, plywood sales could be affected by the slowdown in economic activities and weaker currency in Japan, which contributed more than 94% to the Group’s exports last year.

The cheapest plantation player in our coverage. Our SOP-based TP of RM4.88 hinges on i) RM2,450/mt price assumption and 11% FFB production growth for the plantation arm, ii) steady growth for timber product selling prices and production sales. Given its undemanding valuations of PER of 11x currently, we suggest investors start accumulating shares in the company, which we see has at least a 31% potential upside and attractive dividend yield of 5.5% at current levels.

Source: PublicInvest Research - 15 Dec 2014

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