9MFY21 CNP of RM170.5m is above our (97%) and consensus (95%) expectations due to higher CPO prices. Dividend declared implies a yield of 9.3%, which surprised us. Looking ahead into 4QFY21, stronger CPO prices should overshadow a slight blip in production and an expected decline in its timber division (order slowdown during Deepavali). Raise FY21-22E CNP by 46-12%. Maintain MP with higher SoP-derived TP of RM3.25 (from RM2.85). ESG score is at 42%.

Above expectations. 9MFY21 Core Net Profit (CNP) came in at RM170.5m (+163% YoY) which is above our/consensus’ expectations at 97%/95% due to higher CPO prices. 9MFY21 FFB output of 487k MT (-9% YoY) is at 70% of our full-year estimate.

Dividend surprises. On 9 July 2021, TAANN announced its first interim DPS of 10.0 sen which is captured in 3QFY21. Yesterday, TAANN announced a second interim DPS of 20.0 sen, which should be captured in 4QFY21. This brings FY21 DPS to 30.0 sen, (at 188% of our estimate) and implies a yield of 9.3%. Accordingly, we have adjusted our dividend assumptions.

Results’ highlight. YoY, 9MFY21 CNP leapt (+163%) mainly due to a 127% improvement in plantation PBT stemming from stronger average CPO price (+62%) which overwhelmed lower FFB output (-9%). QoQ, 3QFY21 CNP rose (+19%) attributable to: (i) better plantation PBT (+18%) on higher average CPO price (+2%), and better FFB output (+24%), as well as (ii) better timber PBT (+69%) on higher plywood ASP (+9%) and volume (+12%).

Still counting on upstream’s strength. Despite our expectations of slightly weaker FFB output, the group’s plantation division should continue to see sequential improvement in 4QFY21 from higher CPO prices (QTD 4QFY21: +17%). However, timber division’s earnings could decline sequentially given that orders typically slow down during Deepavali. Note that India is the group’s largest buyer of export logs (82% in FY20).

Raise FY21E CNP by 46% on higher CPO price of RM4,200/MT (vs. RM3,700/MT previously), and raise FY22E CNP by 12% on higher timber EBIT margin of 10% (vs. c.6% previously).

Maintain MARKET PERFORM with a higher SoP-derived TP of RM3.25 (from RM2.85). TAANN is currently traded at FY22E PER of c.10x, implying -0.5SD from mean, which we think is fairly valued. Its upstream peers (without timber volatility) are traded at below -0.5SD levels. TAANN also has the lowest ESG score among our coverage at 42%.

Risks to our call include: (i) change in export log quota, (ii) significant deterioration of export log prices, and (iii) re-imposition of lockdowns.

Source: Kenanga Research - 23 Nov 2021