KEY INVESTMENT HIGHLIGHTS

• Production to remain stable for the whole year
• Cost of production remain the lowest among its peers
• Earnings estimates tweaked higher
• Maintain BUY with a new TP of RM4.41

Meeting with Ta Ann. We had a meeting with management recently and reaffirmed on the stable prospect for its operation in the near-term. Key takeaways from the meeting as below.

FFB Production to remain stable. Operational wise, due to wet weather conditions in the Sarawak area, as well low manuring activities carried during the MCO year, the FFB production inched by +4.2%yoy, resulting the FFB sales volume to be only around 144,000 Mt (+1.8%yoy) in the 2QFY24. Its CPO production was down to nearly 63,000 Mt (- 6.6%yoy) as a result of lower OER level at 19.12% as the ripeness of the fruitlet was somewhat affected by the past wet weather months.

The management anticipates that FFB production to catch-up in the remaining months and surge by +6.0%yoy to approximately 720,000 Mt for the whole year. With decent weather conditions beginning to be seen in October, this should provide a favourable environment for the FFB evacuation process and manuring activities. The cost of production on the other hand, has now moderated to approximately RM1,900- RM2,000/Mt versus in early of the year attributable to a combination of declined in fertilizer price and higher CPO production volume.

Earnings estimates. We are tweaking our earnings estimate to aligns with the management baseline projection. With a FFB production to grow by +7%yoy/+8%yoy over FY24E-FY25F, respectively, we have revised earnings estimates upward by +2%yoy/+6%yoy to RM2611.2m and RM228.4m accordingly. We consider this is an organic production growth as Ta Ann is no longer affected by labor shortages and the recovery in the estate will be aided by impact of decent fertilizer application in the past 2 years. Our projections also account for a decrease in production costs to approximately RM1,900-2,000/tonne (to-date cost of production estimated about RM2,000/Mt, attributed to a decline in fertilizer prices.

Recommendation. Maintain our BUY call with a revised target price of RM4.41 previously RM4.16 based on our forward valuation of FY25F EPS of 51.8 sen while keeping our 8.5x P/E target, to nearly 5 years historical average mean. The share price is highly connected with CPO movement c. 0.82 correlation, hence any upward trajectory in CPO prices (dry weather spell) would provide trading opportunity in the stock.

Source: MIDF Research - 9 Oct 2024