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Thursday, April 16, 2015

Jaya Tiasa Holdings - Yield critical BUY

- We maintain Buy on Jaya Tiasa, with an unchanged fair value of RM2.13/share, based on a PE of 20x FY16F EPS of 10.7 sen/share.

- The share price currently undervalues the oil palm business at only RM31,000/hectare (planted area of >67,000ha) vs. recent market transaction of over RM80,000/ha.

- At our target price, we value the plantation division at RM32,000/ha. We reiterate that this is fair given the poor performance of the plantation division.

- In the latest announcement released yesterday, March FFB amounted to 43,510 tonnes – an improvement from January’s and February’s 34,000-35,000 tonnes. For now, we maintain our monthly average output at 65,000/tonnes for the rest of FY15F.

- It posted a 2QFY15F core net loss of RM2.9mil, stemming from losses at its plantation and plywood divisions, both of which may worsen in 3QFY15 due to sharply lower volumes in FFB output and soft plywood prices.

- Despite the current lower-than-expected FFB output, we continue to believe Jaya Tiasa’s plantation division is poised for strong long-term growth. We expect stable state production at 1.5-1.6mil tonnes per annum over the longer term as more trees mature.

- We had earlier expected FFB production to breach the 1mil-tonne mark by FY6F. We still do not rule out that possibility, but maintain a more conservative forecast of 900,000 tonnes (+18% YoY) for FY16F.

- Given our low base FFB yield assumption at only 14.7 tonnes/ha (vs. estimated 13.4 tonnes/ha for FY15F), the risk bias could be on the upside, subject to CPO prices. We maintain our CPO price assumption at RM2,300 and RM2,400/tonne for FY15F and FY16F, respectively.

- The remainder of the calendar year would be a crucial period. We expect improvements in FFB output and OER, lest there be unknown structural issues.

- The key risks include a significant downturn in log demand from India, widening losses at the manufacturing division and FFB yield remaining stagnant

- Despite our belief of its undervaluation, any significant upside to the share price may only be contingent upon a sustained improvement in FFB production.

Source: AmeSecurities Research - 16 Apr 2015

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