TAANN: Neutral Rating Sustained Amid Upgraded Earnings Outlook and Strong Dividend Yields

A recent investment bank research report has maintained a Neutral rating on the company, revising its earnings forecasts upwards for FY2025-2027. The target price has been adjusted to MYR3.95, indicating a potential downside of 4.8% from the last traded price of MYR4.15. The valuation continues to be supported by a robust dividend yield premium.

Performance Review and Key Drivers

Following its 2Q25 results, which were in line with analyst estimates, the company’s share price saw a rally of approximately 5%. This was largely buoyed by strong Crude Palm Oil (CPO) and Palm Kernel (PK) prices, which experienced significant increases in 3Q25, with CPO spot prices rising 10% quarter-to-date. As a pure plantation play, the company directly benefits from these elevated commodity prices.

Furthermore, the company has consistently maintained attractive dividend payout ratios, ranging from 53-84% over the past three years. Management has expressed confidence in sustaining a 70-80% payout ratio for FY2025-2026, translating into attractive yields of around 8%, significantly above the peer average of 4%. This is further underpinned by the company’s strong net cash position.

Outlook and Earnings Revisions

The report highlights an upward revision of FY2025-2027 earnings by 6% annually, primarily driven by higher assumptions for external Fresh Fruit Bunch (FFB) purchases. External FFB is now projected to account for approximately 65% of the total FFB processed from FY2025-2027, an increase from the FY2022-2024 average of 59%. However, internal FFB output declined by about 7% year-on-year up to August, falling below the guidance of +6% to +12% for FY2025. Internal output growth for FY2025 is now forecast at +3% year-on-year.

While CPO prices have remained strong, they are anticipated to ease in the coming months as the peak output season approaches. The company remains susceptible to CPO price fluctuations, with earnings potentially affected by 12-15% for every MYR100/tonne change in CPO prices.

ESG and Valuation Perspective

The company’s overall ESG score has improved to 2.2 from 2.1, primarily due to management’s commitment to maintaining zero work-related fatalities in FY2025 and continued investment in worker facilities and welfare. The revised target price of MYR3.95 is based on an unchanged 11x FY2026 P/E multiple, incorporating a 16% ESG discount. Despite trading at 9.8x FY2026 P/E, which is two standard deviations above its historical mean, the valuation is deemed fair, largely owing to its above-average dividend payout ratios.