TAANN: Robust Production Performance Fuels Dividend Expectations, ‘Outperform’ Rating Maintained

A leading plantation and timber company reported robust production figures for the fourth quarter of fiscal year 2025 (4QFY25), setting the stage for potential earnings upside and higher dividend payouts. The investment bank maintained its ‘Outperform’ rating on the stock with an unchanged target price.

Performance Review

The company recorded a significant increase in Fresh Fruit Bunch (FFB) production, growing 27% year-on-year (YoY) and 21% quarter-on-quarter (QoQ) in 4QFY25. This surge brought the full-year FFB production to 666,005 metric tonnes, representing a 3% increase. Notably, this marks the highest quarterly production level achieved since 3QFY20. Log production also demonstrated a strong recovery, escalating by 40% YoY in the final quarter.

Despite a decline in Crude Palm Oil (CPO) prices, which averaged RM4,164/mt (down 13.9% YoY) and palm kernel prices averaging RM3,348/mt (down 3.4% YoY) in 4QFY25, the strong production volumes, coupled with lower production costs and improved earnings contribution from its 29.4%-owned Sarawak Plantation, suggest a possibility of an earnings surprise for the upcoming 4QFY25 results, scheduled for release on February 26th.

Future Outlook and Dividends

Management has set an ambitious target for double-digit FFB production growth in FY26F, driven by a normalised FFB yield exceeding 17mt/ha and favorable weather conditions in Sarawak. This optimistic outlook bodes well for sustained operational performance.

Given the strong production numbers and healthy cash position of RM355 million, alongside operating cash flow exceeding RM230 million per annum, the investment bank anticipates a higher dividend payout in the final quarter. The company has already declared a total of 30 sen dividend per share (DPS) year-to-date. Expectations are for an additional 10-15 sen DPS for 4QFY25, potentially bringing the full-year DPS to 40-45 sen, translating to an attractive dividend yield of 9-10%, positioning the company among Malaysia’s highest-yielding stocks.

Valuation

The investment bank views the stock as “deeply undervalued.” Excluding net cash of RM355 million and the RM275 million value from its stake in Sarawak Plantation, the stock is currently trading at an unjustifiably low level of 6-7x Price-to-Earnings Ratio (PER) based on FY25-27F earnings forecasts. This valuation significantly trails the industry average of 13-15x PER for small- to mid-sized plantation companies, as well as its associate, Sarawak Plantation, which trades at 11-12x.