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Wednesday, May 24, 2017

Ta Ann - Stellar Performance From Plantation Division

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INVESTMENT HIGHLIGHTS

  • 1QFY17 Core Net Income is better than expected
  • 1QFY17 Core Net Income tripled yoy
  • Earnings estimate increased
  • Upgrade to BUY with higher TP of RM4.30
1QFY17 Core Net Income is better than expected. Ta Ann Holdings (Ta Ann) FY16 Core Net Income (CNI) of RM42.2m was above expectation as it made up 37% and 33% of ours and consensus estimate, respectively. The strong result is caused by stellar performance from the plantation division as 1QFY17 FFB production growth came in stronger than expected at 20% yoy to 148,715 MT. As expected, no dividend is announced in the first quarter.
1QFY17 Core Net Income tripled yoy. Plantation division PBT surged 452% yoy to RM44.2m as it benefited from better CPO price (+28% yoy to RM2933 per MT) and higher FFB production (+20% yoy to 148,715 MT). Timber division earnings also improved (PBT +42% yoy to RM13.5m) as the 13% rise yoy in export logs price to USD249/m3 has more than offset the weak plywood price (-5% yoy to USD433/m3).
Earnings estimate increased. FY17 CNP is increased by 1% to RM115m. FY18 is also raised by 3% to RM126m. We have imputed in higher FFB production for both years.
Upgrade to BUY with higher TP of RM4.30. We have increased our Target Price (from RM4.25) in line with the earnings estimate increase for FY17. Valuation method is unchanged based on 16.6x Forward PER (mean valuation). We upgrade the stock to BUY as i) its plantation division earnings growth should remain strong due to high FFB volume expected at 10%, ii) timber division is expected to remain profitable due to the support from high export logs price and iii) it is a key laggard among plantation stocks as its YTD share price decline of 11.1% trailed KL Plantation Index +3.9% despite its decent fundamentals
Source: MIDF Research - 24 May 2017

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