TAANN: Robust Plantation Performance Drives Earnings Beat, Outlook Positive
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading Sarawak-based company reported a strong financial performance for its second quarter of fiscal year 2025 (2QFY25) and first half of fiscal year 2025 (1HFY25), with core profits significantly exceeding both internal and street expectations. The positive results were primarily attributed to robust contributions from its plantation segment and effective cost management.
Performance Review
The company recorded a 2QFY25 core profit of RM57.7 million, marking a substantial 45% increase year-on-year (YoY). For the entire 1HFY25, core profit reached RM109.8 million, up 35.2% YoY, accounting for 57.8% and 59.8% of the full-year forecasts from the company and the street, respectively. Sales for 2QFY25 grew by 18% YoY to RM432.6 million, largely propelled by higher plantation sales, despite a partial offset from softer timber sales.
The plantation segment was a key driver, benefiting from stronger crude palm oil (CPO) prices and increased fresh fruit bunch (FFB) production. The average CPO price rose from RM4,000/mt to RM4,102/mt in 2QFY25, contributing to a 12% YoY increase in FFB production to 71,035mt. Significantly, CPO production cost (ex-PK credit) averaged RM1,700/mt, down from RM2,100/mt in 1HFY25, indicating improved cost efficiencies. The oil extraction rate (OER) also improved from 19.12% to 20.62%.
Conversely, the timber segment faced challenges, with plywood sales volume declining by 9.7% YoY. However, the segment managed to break even as losses from plywood were cushioned by stronger log earnings and enhanced log export prices, which grew from USD196/cu m to USD235/cu m.
Future Outlook and Challenges
Despite a 4.4% decline in FFB production for the first seven months of FY25, management remains confident in achieving its full-year FY25 FFB production target of 740,000mt (+11% YoY), anticipating a strong catch-up in the remaining months. The company is also on track to meet its replanting target of 2,900 hectares for the full year, with 1,200 hectares already replanted.
Several challenges are noted, including an anticipated 3-4% increase in labour costs due to a higher minimum wage rate, the introduction of EPF for foreign workers, and a new state labour levy. The company has allocated RM52 million for capital expenditure, with significant portions earmarked for replanting (45%), machinery upgrade (30%), and mill upgrade (15%). While the plywood business and a weaker USD currency have presented headwinds, the timber segment is expected to turn around this year, bolstered by stronger earnings from logging. The company reiterated its policy of not engaging in forward sales for CPO.
The investment bank maintains its “Outperform” recommendation on the stock, with an unchanged Sum-of-Parts (SOP)-based target price of RM5.10, signaling continued confidence in the company’s prospects.
