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Friday, January 24, 2014

Jaya Tiasa Holdings - Re-rating on prime mature area growth Buy


- We upgrade Jaya Tiasa to a BUY (from HOLD previously) with an upward revised fair value of RM2.85/share (vs. RM2.00/share previously).

- The FV is based on a higher PE of 18x (vs. 15x previously) on FY15F EPS of 15.8 sen. This is underpinned by its plantation division at an inflexion point in the growth of prime mature area and FFB production.

- At the current price, the plantation unit, based on a residual value of ~RM40,000/planted ha (excluding timber), is tagged at a steep 25% discount to its nearest peer IJMP’s RM53,000/planted ha.

- At RM2.85/share, Jaya Tiasa’s plantation’s planted area would be fairly valued at ~RM49,000/ha, but still at an ~8% discount to IJMP’s and almost half of the select average (See Tables 1-3 on Page 2, and Table 7 on Page 4 for IJMP’s tree age profile and Table 8 on Page 5 for Jaya Tiasa’s).

- Additionally, the higher PE of 18x is still a notch below its 5-year average forward PE of 19x and two notches below the simple average PE of 20x for FY14F for Malaysian plantation stocks (See Chart 1 and Table 4 on Page 3).

- With calendarised earnings, Jaya Tiasa is currently trading at only 16x and 13x PE for CY14 and CY15, respectively. At our fair value RM2.85/share, it is at 20x and 17x, respectively.

- The higher valuation is supported by the following:- 1) We project a surge in prime mature areas to support its strong FFB growth – by 30% to 866,000 tonnes in FY14F, by 20% to breach 1mil tonnes at 1.05mil tonnes in FY15F, and by another 10% in FY16F. The prime mature areas (>7years) will rise from just 12% of total planted areas in FY13 to >50% by FY16F, which will significantly improve FFB production yield as well as OER. The oil palm trees’ current average age is at 6 years. 2) The addition of 2 more CPO mills, within individual estates, will slash transportation cost by 40%, if not more. Transportation now accounts for between RM45-RM50/tonne. 3) We concur with the general expectations that timber prices – with plywood and log export prices at above US$200/cu m and US$500/cu m respectively – should sustain at current levels.

- Even beyond our fair value, we believe that the stock has more legs on the upside, starting from FY15F onwards as operating performance dictates. Downside risks will be limited – hinged largely on the performance of CPO prices (See Table 6 on Page 4 for CPO price sensitivity).

Source: AmeSecurities

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