Jaya Tiasa Holdings Bhd
(Dec 13, RM6.67)
Maintain outperform with revised fair value RM7.28 from RM6.71: High log prices (about US$250 [RM795] per cu m in 1QFY11) were mainly due to an acute shortage of logs during the early part of 2011, as production was hampered by extremely wet weather conditions in Sarawak.
Log prices have since eased as log production volume normalised over the past few months. Hence, we expect Jaya Tiasa to report lower earnings for its log division in 2QFY12, with average log prices of about US$220 per cu m.
Jaya Tiasa typically produces lower grade, general plywood, but there has been a shift to produce higher grade plywood recently to take advantage of the higher demand from Japan after the March earthquake and tsunami.
We believe Jaya Tiasa is likely to continue to produce more higher-grade plywood in the near term, as current prices for general plywood have been weak due to oversupply, while prices for higher-grade plywood have been holding up quite well.
Nevertheless, Jaya Tiasa’s plywood average selling price (ASP) is still expected to fall in 2QFY12 given the decline in plywood prices over the past few months.
According to management, Jaya Tiasa’s fresh fruit bunch (FFB) production volume is set to grow significantly by 30% to 45% annually over the next few years as more oil palm trees come into maturity.
Hence, this will drive Jaya Tiasa’s earnings growth going forward, despite our relatively flat CPO price assumptions of RM3,100 per tonne in 2012 and RM2,900 per tonne in 2013.
Jaya Tiasa’s cost of production (about RM1,500 per tonne currently) is still higher than other plantation companies’ RM1,100 to RM1,300 per tonne due to the young age profile of its trees.
Risks include: (i) a fall in timber and CPO prices; (ii) a slower than expected recovery in the global economy; and (iii) significant increase in crude oil-related glue and logistics costs.
We raise our FY11 to FY13 ending April net profit forecasts by 4% to 9.6%, after adjusting for higher FFB production forecasts (of 2% to 4%) and a lower cost of production (from RM1,500 per tonne to RM1,400 to RM1,500 per tonne).
Our target price for Jaya Tiasa is revised to RM7.28 (from RM6.71 previously), at a 10% discount to sum-of-parts-based fair value, which is based on target price earnings ratio of 8 times CY12 earnings for the timber division and 12 times CY12 earnings for the plantation division.
We continue to like Jaya Tiasa as there will be a significant boost to its earnings from plantation due to increasing FFB production volume and favourable CPO prices.
In our view, this could provide “earnings comfort” to investors and also help to cushion the more volatile earnings from timber. — RHB Research, Dec 13
(Dec 13, RM6.67)
Maintain outperform with revised fair value RM7.28 from RM6.71: High log prices (about US$250 [RM795] per cu m in 1QFY11) were mainly due to an acute shortage of logs during the early part of 2011, as production was hampered by extremely wet weather conditions in Sarawak.
Log prices have since eased as log production volume normalised over the past few months. Hence, we expect Jaya Tiasa to report lower earnings for its log division in 2QFY12, with average log prices of about US$220 per cu m.
Jaya Tiasa typically produces lower grade, general plywood, but there has been a shift to produce higher grade plywood recently to take advantage of the higher demand from Japan after the March earthquake and tsunami.
We believe Jaya Tiasa is likely to continue to produce more higher-grade plywood in the near term, as current prices for general plywood have been weak due to oversupply, while prices for higher-grade plywood have been holding up quite well.
Nevertheless, Jaya Tiasa’s plywood average selling price (ASP) is still expected to fall in 2QFY12 given the decline in plywood prices over the past few months.
According to management, Jaya Tiasa’s fresh fruit bunch (FFB) production volume is set to grow significantly by 30% to 45% annually over the next few years as more oil palm trees come into maturity.
Hence, this will drive Jaya Tiasa’s earnings growth going forward, despite our relatively flat CPO price assumptions of RM3,100 per tonne in 2012 and RM2,900 per tonne in 2013.
Jaya Tiasa’s cost of production (about RM1,500 per tonne currently) is still higher than other plantation companies’ RM1,100 to RM1,300 per tonne due to the young age profile of its trees.
Risks include: (i) a fall in timber and CPO prices; (ii) a slower than expected recovery in the global economy; and (iii) significant increase in crude oil-related glue and logistics costs.
We raise our FY11 to FY13 ending April net profit forecasts by 4% to 9.6%, after adjusting for higher FFB production forecasts (of 2% to 4%) and a lower cost of production (from RM1,500 per tonne to RM1,400 to RM1,500 per tonne).
Our target price for Jaya Tiasa is revised to RM7.28 (from RM6.71 previously), at a 10% discount to sum-of-parts-based fair value, which is based on target price earnings ratio of 8 times CY12 earnings for the timber division and 12 times CY12 earnings for the plantation division.
We continue to like Jaya Tiasa as there will be a significant boost to its earnings from plantation due to increasing FFB production volume and favourable CPO prices.
In our view, this could provide “earnings comfort” to investors and also help to cushion the more volatile earnings from timber. — RHB Research, Dec 13
