Target Price : RM4.00 ↑ TAANN’s FY23 results beat our forecast (on lower cost) but met market expectation. Its 4QFY23 core net profit dipped 29% QoQ on lower timber and FFB output compounded by softer CPO prices.

However, with easier costs and better margins outlook, we raise our FY24F net profit forecast by 13%, lift our TP by 5% to RM4.00 (from RM3.80) but maintain our MARKET PERFORM call.

Its FY23 core net profit beat our forecast by 10% but met market expectation. The main variance against our forecast was lower-than- expected cost.

YoY, its FY23 core net profit declined by 47% as CPO prices were unusually high a year ago compounded by weaker timber and FFB outputs in FY23. Its 4QFY23 earnings also declined QoQ and YoY on soft plantation earnings due to smaller harvest and weaker CPO prices.

Likewise, timber earnings were also softer in 4Q on lower output and flattish prices. Its net cash rose QoQ, from RM255m to RM303m. No final dividend was declared, which brings cumulative FY23 DPS to 25.0 sen compared to 40.0 sen a year ago, but very much within our expectation.

Plantation earnings should improve on flattish palm oil prices while input costs are moderating. We are keeping our forecast average CPO prices of RM3,800 per MT for FY24-25 on tight global edible oil inventory outlook. After three stagnant years, demand is recovering while 2024 supply outlook is tight; hence, inventory is expected to face downward pressures. With firm CPO prices amidst more moderate input costs, better earnings should emerge in FY24-25.

Soft timber earnings outlook. Subdued home building and construction activities are expected as major economies adjust to an environment of higher borrowing costs. Thus far, softwood prices have dipped more than hardwood (20% vs. 5%) but with muted timber demand and prices; hence, earnings are still likely to stay flattish for TAANN in FY24-25.

Forecasts. We raise our FY24F net profit forecast by 13% and introduce FY25F set with 6% earnings growth on moderating cost environment amidst flattish palm oil prices. We are keeping our forecast average CPO prices of RM3,800 per MT intact for FY24-25 on tight global edible oil inventory outlook. With firm CPO prices and lower fertiliser as well as fuel costs, earnings should improve over FY24-25, albeit modestly. We project NDPS of 25 sen for FY24-25.

Valuations. Consequently, we lift our TP by 5% to RM4.00 (from RM3.80) based on 1.0x PBV instead of using 11x PER previously. The 1.0x PBV is in line with smaller plantation companies’ PBV of between 0.9x and 1.1x, with a 5% ESG discount given its 2-star rating as appraised by us (see Page 3). Its palm oil operation is MSPO certified (but not RSPO). TAANN’s logging operations is certified by the Malaysian Timber Certification Scheme and European-based PERF.

Maintain MARKET PERFORM.

Risks to our call include: (i) weather impact on edible oil and timber supplies, (ii) unfavourable commodity price fluctuations, and (iii) cost inflation.

Source: Kenanga Research - 29 Feb 2024