Stock Name: JTIASA
Company Name: JAYA TIASA HOLDINGS BHD
Research House: RHB
Jaya Tiasa Holdings Bhd
(Feb 7, RM5.00)
Maintain outperform at RM4.88 with fair value raised to RM6.30 (from RM5.78): A pickup in demand for tropical logs and the tight supply situation in Sarawak drove up average log selling prices for Jaya Tiasa from US$172/ cubic metre (m3) in May 2010 to US$221/m3 in Dec 2010. Jaya Tiasa believes that the current strong log prices will hold at least for another six months, even after log production in Sarawak starts to normalise as the seasonal wet weather conditions end.
Average selling prices achieved by Jaya Tiasa for its plywood division are lower compared with its peers (such as Ta Ann and WTK) due to the difference in product mix. Hence, despite rising plywood prices reported by the industry, average selling prices achieved by Jaya Tiasa have fluctuated from month to month.
Jaya Tiasa said it plans to increase its veneer sales to about 25%-30% of its production due to the better margin achieved compared with plywood. We are slightly sceptical on whether this could be achieved as we believe the current high selling price for veneer is only temporary due to log shortage problem in plywood mills in other countries.
Jaya Tiasa said that its fresh fruit bunch (FFB) production forecasts are conservative and that the forecasts could be as much as 25% lower than the actual production numbers. This is mainly due to its treatment of mature areas, where areas that mature during a particular financial year will only be reflected in the next financial year forecast.
Risks include timber and crude palm oil prices falling; a slower-than-expected recovery in the global economy; and significant increase in crude oil-related glue and logistics costs.
We raised our FY04/11-13 net profit by 7.7%-11.3%, after adjusting for: 1) Higher log prices; and 2) Lower plywood prices.
We raised our target price for Jaya Tiasa to RM6.30 (from RM5.78 previously) based on unchanged target PER of 12 times CY11 earnings for the timber division and 13x CY11 earnings for the plantation division. We like Jaya Tiasa as we expect strong earnings growth going forward due to the sharp increase in FFB production owing to increasing mature hectarage.
There is going to be a significant change to Jaya Tiasa's earnings profile, where its plantation division will contribute about 70%-75% of earnings from FY04/11 onwards. Maintain outperform. ' RHB Research, Feb 7
This article appeared in The Edge Financial Daily, February 8, 2011.
Company Name: JAYA TIASA HOLDINGS BHD
Research House: RHB
Jaya Tiasa Holdings Bhd
(Feb 7, RM5.00)
Maintain outperform at RM4.88 with fair value raised to RM6.30 (from RM5.78): A pickup in demand for tropical logs and the tight supply situation in Sarawak drove up average log selling prices for Jaya Tiasa from US$172/ cubic metre (m3) in May 2010 to US$221/m3 in Dec 2010. Jaya Tiasa believes that the current strong log prices will hold at least for another six months, even after log production in Sarawak starts to normalise as the seasonal wet weather conditions end.
Average selling prices achieved by Jaya Tiasa for its plywood division are lower compared with its peers (such as Ta Ann and WTK) due to the difference in product mix. Hence, despite rising plywood prices reported by the industry, average selling prices achieved by Jaya Tiasa have fluctuated from month to month.
Jaya Tiasa said it plans to increase its veneer sales to about 25%-30% of its production due to the better margin achieved compared with plywood. We are slightly sceptical on whether this could be achieved as we believe the current high selling price for veneer is only temporary due to log shortage problem in plywood mills in other countries.
Jaya Tiasa said that its fresh fruit bunch (FFB) production forecasts are conservative and that the forecasts could be as much as 25% lower than the actual production numbers. This is mainly due to its treatment of mature areas, where areas that mature during a particular financial year will only be reflected in the next financial year forecast.
Risks include timber and crude palm oil prices falling; a slower-than-expected recovery in the global economy; and significant increase in crude oil-related glue and logistics costs.
We raised our FY04/11-13 net profit by 7.7%-11.3%, after adjusting for: 1) Higher log prices; and 2) Lower plywood prices.
We raised our target price for Jaya Tiasa to RM6.30 (from RM5.78 previously) based on unchanged target PER of 12 times CY11 earnings for the timber division and 13x CY11 earnings for the plantation division. We like Jaya Tiasa as we expect strong earnings growth going forward due to the sharp increase in FFB production owing to increasing mature hectarage.
There is going to be a significant change to Jaya Tiasa's earnings profile, where its plantation division will contribute about 70%-75% of earnings from FY04/11 onwards. Maintain outperform. ' RHB Research, Feb 7
This article appeared in The Edge Financial Daily, February 8, 2011.
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