Stock Name: JTIASA
Company Name: JAYA TIASA HOLDINGS BHD
Research House: AMMB
Timber sector
Initiate coverage with overweight recommendation: We initiate coverage on the timber sector with an 'overweight' call, recommending a 'buy' on Jaya Tiasa Holdings Bhd and a 'hold' on Ta Ann Holdings Bhd with fair values of RM6 and RM5.61 respectively, based on a PER of 15 times.
Our recommendations are grounded on three key points:
1.'' ''Timber price recovery.
The timber industry has recovered from the ebbs of the recent global economic crisis. Plywood prices fell to a low of around US$350 (RM1,225)/cu m in 2009 but have rebounded to a high of US$485/cu m in recent weeks. Additionally, Meranti regular logs, which plunged to a low of US$120-U$130/cu m then, have in recent weeks traded at a high of US$290/cu m.
2.'' ''Structural transformation.
The two companies are reaping the fruit of their venture into oil palm about a decade ago. CPO is now trading at between RM3,900 and RM4,000/tonne against an average of RM2,700 per tonne last year. Their rapid growth in oil palm has simply become too significant to ignore.
3.'' ''Potential reclassification.
For the two companies, a reclassification from the industrial products sector to plantations appears to be inevitable ' perhaps within the next three years. This will increase their profile among investors.
Our stance mainly stems from the high-octane growth in their oil palm business. As of FY10, the oil palm division accounted for about 45% of Jaya Tiasa's pre-tax profit against only 6% in FY06 while as of'' FY09, oil palm earnings of RM37 million represented 40% of Ta Ann's pre-tax profit compared with a mere 1.4% in FY06.
Jaya Tiasa and Ta Ann's fair values are based on a PER of 15 times their FY11F earnings per share of 40 sen and 37.4 sen, respectively. To account for their oil palm segment's growing prominence, with timber to boot, the fair PER is at the high end of the PER range of the small cap plantation companies under our coverage but just a notch below IJM Plantations Bhd's fair PER of 16 times.
Jaya Tiasa and Ta Ann's mature oil palm areas are comparable to that of IJM Plantations'. As at FY10, Jaya Tiasa and Ta Ann have total planted areas of 50,424ha and an estimated 27,500ha, respectively, against IJM Plantations' 30,528ha. Jaya Tiasa and Ta Ann's mature hectarages are expected to rise to 25,000ha and 20,000ha, respectively, in FY11F.
The risks to our projections include: (i) A significant decline in CPO prices: (ii) A sharper than expected appreciation of the ringgit; and (iii) Rising logistics and transport costs due to the withdrawal of fuel subsidies and rising diesel prices in the local market. ' AmResearch, Feb 14
This article appeared in The Edge Financial Daily, February 16, 2011.
Company Name: JAYA TIASA HOLDINGS BHD
Research House: AMMB
Timber sector
Initiate coverage with overweight recommendation: We initiate coverage on the timber sector with an 'overweight' call, recommending a 'buy' on Jaya Tiasa Holdings Bhd and a 'hold' on Ta Ann Holdings Bhd with fair values of RM6 and RM5.61 respectively, based on a PER of 15 times.
Our recommendations are grounded on three key points:
1.'' ''Timber price recovery.
The timber industry has recovered from the ebbs of the recent global economic crisis. Plywood prices fell to a low of around US$350 (RM1,225)/cu m in 2009 but have rebounded to a high of US$485/cu m in recent weeks. Additionally, Meranti regular logs, which plunged to a low of US$120-U$130/cu m then, have in recent weeks traded at a high of US$290/cu m.
2.'' ''Structural transformation.
The two companies are reaping the fruit of their venture into oil palm about a decade ago. CPO is now trading at between RM3,900 and RM4,000/tonne against an average of RM2,700 per tonne last year. Their rapid growth in oil palm has simply become too significant to ignore.
3.'' ''Potential reclassification.
For the two companies, a reclassification from the industrial products sector to plantations appears to be inevitable ' perhaps within the next three years. This will increase their profile among investors.
Our stance mainly stems from the high-octane growth in their oil palm business. As of FY10, the oil palm division accounted for about 45% of Jaya Tiasa's pre-tax profit against only 6% in FY06 while as of'' FY09, oil palm earnings of RM37 million represented 40% of Ta Ann's pre-tax profit compared with a mere 1.4% in FY06.
Jaya Tiasa and Ta Ann's fair values are based on a PER of 15 times their FY11F earnings per share of 40 sen and 37.4 sen, respectively. To account for their oil palm segment's growing prominence, with timber to boot, the fair PER is at the high end of the PER range of the small cap plantation companies under our coverage but just a notch below IJM Plantations Bhd's fair PER of 16 times.
Jaya Tiasa and Ta Ann's mature oil palm areas are comparable to that of IJM Plantations'. As at FY10, Jaya Tiasa and Ta Ann have total planted areas of 50,424ha and an estimated 27,500ha, respectively, against IJM Plantations' 30,528ha. Jaya Tiasa and Ta Ann's mature hectarages are expected to rise to 25,000ha and 20,000ha, respectively, in FY11F.
The risks to our projections include: (i) A significant decline in CPO prices: (ii) A sharper than expected appreciation of the ringgit; and (iii) Rising logistics and transport costs due to the withdrawal of fuel subsidies and rising diesel prices in the local market. ' AmResearch, Feb 14
This article appeared in The Edge Financial Daily, February 16, 2011.
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