TAANN: Strong Earnings Performance Driven by Robust Margins, Outlook Positive

Performance Review

A recent investment bank research report indicates a strong financial performance, with core profit for the first nine months of the current fiscal year (9MFY25) reaching RM168 million, representing a 3.8% year-on-year increase. This result significantly surpassed both the bank’s and the street’s full-year expectations, making up 89% and 88% of forecasts, respectively. The commendable performance is largely attributed to improved margins, bolstered by strong palm kernel credit.

The third quarter of FY25 (3QFY25) saw a 7% rise in sales, from RM467 million to RM502 million, driven by higher contributions from both the timber and palm oil segments. Timber revenue surged by 25% year-on-year to RM64.1 million, benefiting from stronger log sales (+44.2% YoY) and plywood sales (+18.9% YoY). Average log export prices also climbed from USD214/cu m to USD242/cu m. Meanwhile, palm oil sales increased by 5% year-on-year to RM437 million, primarily due to stronger crude palm oil (CPO) prices, which rose from RM3,980/mt to RM4,194/mt. Despite a 5.2% decline in palm oil earnings, the timber segment’s turnaround was a key factor in the 2% year-on-year gain in 3QFY25 core profit.

Operational Challenges and Efficiencies

Despite the overall positive trend, the company faced some operational challenges, including a 16% year-on-year weakening in Fresh Fruit Bunch (FFB) production during 3QFY25, and a 5% year-on-year decrease for 9MFY25. This was partly due to biological tree stress, a lagged effect from a rainy period in 1QFY25. Plywood prices also experienced a slight dip from USD505/cu m to USD495/cu m. Additionally, 3QFY25 CPO production cost averaged RM2,000/mt.

However, the company continued its efforts in cost efficiency, with fertilizer application on track and costs for 1QFY26 locked in at a 5% decline. The overall improved margins indicate effective cost management.

Future Outlook and Recommendation

Management anticipates production to peak in October before a slight decline in November. The company is on track to replant 2,700 hectares for FY25 and has set an ambitious FFB production target of 770,000 metric tons for FY26, representing a 10% increase year-on-year. A significant capital expenditure of RM68 million has been allocated for FY25, including RM35 million for immature areas, RM22 million for equipment, and the remainder for mill upgrades. Furthermore, 2,000 hectares of plantation landbank in Bintulu, strategically located along the Pan Borneo Highway, are expected to unlock potential asset value.

In light of these factors, the investment bank has retained its Outperform rating for the stock, with a higher SOP-based target price of RM5.64. This new target price reflects an expected return of +32.7% from the last traded price of RM4.25, building on the improved margins and positive future outlook.