Timber
Maintain neutral: Given the recent rally in the plantation sector, we believe this will spur investor interest in quasi-plantation stocks such as Jaya Tiasa Holdings Bhd and Ta Ann Holdings Bhd. While both companies are perceived as timber companies, their earnings profiles have changed over the years, with more than 70% of earnings likely to be contributed by their plantation divisions.
We have a favourable view on the plantation sector in light of the risk of supply shortages with the onset of the La Nina weather phenomenon amid inelastic demand that is unlikely to fall off the cliff. The plantation sector is supported by high crude oil prices and continued strength in liquidity flows in the market.
Notwithstanding our relatively flat crude palm oil (CPO) price assumptions of RM3,100 per tonne in 2012 and RM2,900 per tonne in 2013, we highlight that Jaya Tiasa and Ta Ann will still enjoy relatively robust earnings growth due to significant increase in their fresh fruit bunch (FFB) production volumes over the next few years as a result of increasing mature hectarage.
This could provide “earnings comfort” to investors and help to cushion the more volatile earnings from timber. We believe this will help support the share price performance of Jaya Tiasa and Ta Ann, vis-a-vis pure timber play companies such as WTK Holdings Bhd and Lingui Development Bhd, given the current lacklustre earnings from timber.
We maintain our earnings forecasts. The risks include: (i) lower than expected improvement in Japan’s housing starts; and (ii) price discounting from neighbouring countries with lower cost of production, resulting in lower exports from Malaysia to its major export markets.
In line with the upgrade in our target price earnings ratio for the plantation sector, we adjust our target PER (from 12 to 13 times) for the plantation division of Jaya Tiasa and Ta Ann accordingly. Hence, our fair value for Jaya Tiasa is raised to RM7.80 (from RM7.28) and for Ta Ann to RM6.97 (from RM6.49).
We maintain our “neutral” call on the timber sector as we remain cautious that the recovery in Japan housing starts could stall due to a protracted slowdown in the global economy. This could weigh on timber prices and earnings over the longer term. Nevertheless, we still like Jaya Tiasa and Ta Ann, as there will be a significant boost to their earnings from the plantation division due to increasing FFB production volume and favourable CPO prices. — RHB Research Institute, Jan 11
This article appeared in The Edge Financial Daily, January 12, 2012.
Maintain neutral: Given the recent rally in the plantation sector, we believe this will spur investor interest in quasi-plantation stocks such as Jaya Tiasa Holdings Bhd and Ta Ann Holdings Bhd. While both companies are perceived as timber companies, their earnings profiles have changed over the years, with more than 70% of earnings likely to be contributed by their plantation divisions.
We have a favourable view on the plantation sector in light of the risk of supply shortages with the onset of the La Nina weather phenomenon amid inelastic demand that is unlikely to fall off the cliff. The plantation sector is supported by high crude oil prices and continued strength in liquidity flows in the market.
Notwithstanding our relatively flat crude palm oil (CPO) price assumptions of RM3,100 per tonne in 2012 and RM2,900 per tonne in 2013, we highlight that Jaya Tiasa and Ta Ann will still enjoy relatively robust earnings growth due to significant increase in their fresh fruit bunch (FFB) production volumes over the next few years as a result of increasing mature hectarage.
This could provide “earnings comfort” to investors and help to cushion the more volatile earnings from timber. We believe this will help support the share price performance of Jaya Tiasa and Ta Ann, vis-a-vis pure timber play companies such as WTK Holdings Bhd and Lingui Development Bhd, given the current lacklustre earnings from timber.
We maintain our earnings forecasts. The risks include: (i) lower than expected improvement in Japan’s housing starts; and (ii) price discounting from neighbouring countries with lower cost of production, resulting in lower exports from Malaysia to its major export markets.
In line with the upgrade in our target price earnings ratio for the plantation sector, we adjust our target PER (from 12 to 13 times) for the plantation division of Jaya Tiasa and Ta Ann accordingly. Hence, our fair value for Jaya Tiasa is raised to RM7.80 (from RM7.28) and for Ta Ann to RM6.97 (from RM6.49).
We maintain our “neutral” call on the timber sector as we remain cautious that the recovery in Japan housing starts could stall due to a protracted slowdown in the global economy. This could weigh on timber prices and earnings over the longer term. Nevertheless, we still like Jaya Tiasa and Ta Ann, as there will be a significant boost to their earnings from the plantation division due to increasing FFB production volume and favourable CPO prices. — RHB Research Institute, Jan 11
This article appeared in The Edge Financial Daily, January 12, 2012.
