KUALA LUMPUR (Nov 26): Affin Hwang Capital Research has upgraded Ta Ann Holdings Bhd to "buy" from "hold", as the company’s valuation is seen to be attractive following the decline in its share price.

In a note today, Affin Hwang analyst Nadia Aquidah said the research house made no changes to its core earnings per share forecasts for 2018 to 2020, following the release of Ta Ann’s financial results for the nine months ended Sept 30 (9MFY18).

“We maintain our sum-of-parts-derived target price for Ta Ann at RM2.80, based on unchanged eight times PE for the timber division, a 10 times 2019 PE for the plantation division and an unchanged one time price-to-book value ratio for the forest plantation.

“Based on valuation, we upgrade Ta Ann to a ‘buy’ rating from ‘hold’ previously,” she wrote.

Despite the 48.6% decline in the company’s core net profit for 9MFY18, amid lower contribution from the timber and plantation divisions, Nadia said this was broadly within expectations.

She pointed out that the 91% quarter-on-quarter jump in core earnings for 3QFY18 was surprising, as its peers saw weak performance.

Future earnings growth is expected to be supported by higher contribution from both the plantation and timber divisions.

“We expect log production as well as export log sales volume to be higher in 2019 and 2020 due to Ta Ann’s new Certificate for Forest Management for its subsidiary, Tanjong Manis Holdings Sdn Bhd, under the Malaysian Timber Certification Scheme, which allows them to increase their log exports quota from 20% to 40%,” said the analyst.

She also expects fresh fruit bunch (FFB) and crude palm oil production to increase, as FFB yield improves and matured plantation hectarage rises.

At 9.35am, Ta Ann rose 2 sen or 0.98% to RM2.06, giving a market capitalisation of RM916.38 million.