Ta Ann’s 1HFY21 core earnings tripled to RM93.5m, bolstered by stronger plantation earnings and a surge in earnings contribution from its 32%-owned Sarawak Plantation. The impressive results surpassed ours and the street full year expectations, making up 78% and 67% of full-year estimates, respectively. No dividend was declared for the quarter. In view of the stronger than-expected results, we revise up our FY21 earnings forecast by 31% after inputting higher profit margin. Maintain Outperform call with an unchanged SOP-based TP of RM3.83.

• Lifted by stronger plantation sales (QoQ: +34%, YoY: +83%). The stronger group sales of RM455m were mainly led by an increase in both timber (YoY: +7%) and plantation (>100%) sales. 2QFY21 average CPO selling price jumped from RM2,274/mt to RM4,137/mt while 2QFY21 FFB production weakened by 9.5% YoY to 156k mt, dragged by worsening worker shortage issue and the impact of lower fertilizer application last year. Meanwhile, timber sales added 7% YoY to RM78m as log sales doubled to RM25m despite a 16% YoY in plywood sales to RM51m. 2QFY21 average log export price surged 43% YoY to USD263/cu m and plywood price grew 16% YoY to USD544/cu m. Log export sales volume 20% YoY to 19,262 cu m and plywood exports sales volume dropped 21% YoY to 20,664 cu m.

• 2QFY21 core earnings soared 6-fold to RM65m. The stronger earnings were mainly led by plantation earnings and a turnaround in timber segment. Plantation pre-tax earnings tripled to RM98m, led by stronger CPO margin. CPO all-in production cost rose from RM1,400/mt to RM2,000/mt, attributed to an increase in windfall tax, manuring cost, and wages, higher third party FFB purchase as well as a decline in FFB production. Timber earnings saw a turnaround with a pre-tax profit of RM6.1m on the back of higher log earnings while plywood barely breakeven. Meanwhile, earnings contribution from its 32%-owned Sarawak Plantation doubled to RM13.1m.

• Outlook. Management has retained its FFB production target of 750k mt for 2021(1HFY21 FFB production made up 39% of full-year target) and it expects production to peak this month. Fertiliser application was slower than-expected, reaching 35% due to wet weather condition. On the new replanting activities, it plans to replant up to 3,000ha with 700-1000ha replanted during the 1H. On the harvester shortage, the plantation is facing up to 30% worker shortage and it has redeployed its workers to more productive yield area. Timber prices have been performing well in Aug with log prices hitting USD270/cu m, the highest level in two years. Plywood prices have gained more than 7% since June, supported by vibrant construction activities in Japan amid tight plywood supplies. Lastly. management also guided that the dividend payout could be higher this year in tandem with stronger earnings outlook.

Source: PublicInvest Research - 1 Sept 2021