TAANN: Strong First-Half Performance Spurs Rating Upgrade, Target Price Raised
Key Investment Information | |
---|---|
Investment Bank | TA SECURITIES |
TP (Target Price) | RM0.25 (+25.0%) |
Last Traded | RM0.20 |
Recommendation |
Investment bank TA Securities has upgraded its recommendation for a key plantation counter to BUY, revising its target price upwards, following a strong first-half financial performance for FY2025 that was largely in line with expectations. The upgrade reflects an attractive valuation compared to peers, coupled with a stable earnings outlook.
Performance Review
For the first half of FY2025 (1HFY25), the company’s core Profit After Tax and Minority Interest (PATAMI) came in at RM86.2 million, marking a robust 30.8% year-on-year increase. This performance, which includes a 18.0% year-on-year rise in 2QFY25 core PATAMI to RM44.5 million, was well within both the bank’s and consensus estimates, representing approximately 47% of full-year projections.
Operational Efficiency and Profitability
The positive results were primarily driven by the strong profitability of the oil palm segment. The oil palm division reported a significant surge in both topline and bottom-line figures, with revenue climbing to RM385.2 million (+2.0% quarter-on-quarter, +21.1% year-on-year) and pre-tax profit reaching RM79.8 million (+2.6% quarter-on-quarter, +35.3% year-on-year). This was attributed to decent Fresh Fruit Bunch (FFB) and Crude Palm Oil (CPO) sales volumes, which saw year-on-year increases of +0.5% and +15.2% respectively. Margins were maintained at 20.7%, benefiting from an elevated average CPO price realized at approximately RM4,102 per metric tonne and a softer estimated cost of production around RM2,100 per metric tonne.
Operationally, FFB production remained consistently strong, exceeding 145,000 metric tonnes, supported by productive estate activities as weather patterns normalized. CPO production also saw an 11.1% year-on-year increase, driven by improved crop quality. The oil extraction rate (OER) improved to 19.96% from 19.38% in 2QFY24, ensuring satisfactory estate and mill margins.
Future Outlook and Recommendation
The earnings outlook for the company remains stable, underpinned by an expanding FFB production estimated at around 769,000 hectares and a continued focus on lower production costs. The strong correlation with CPO prices (approximately 0.82) is expected to provide further trading opportunities. The bank is retaining its earnings estimates, aligning with its baseline projections, and notes the company’s insulation from Indonesian regulatory risks due to its purely local operations.
Given the current attractive valuation and positive operational trajectory, the bank has upgraded its recommendation to BUY, with a revised target price reflecting its optimistic outlook.