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Tuesday, June 28, 2016

Jaya Tiasa, Ta Ann to gain from weak ringgit

Tuesday, 28 June 2016
Jaya Tiasa, Ta Ann to gain from weak ringgit

PETALING JAYA: Sarawak-based Jaya Tiasa Holdings Bhd and Ta Ann Holdings Bhd will benefit from the weakening ringgit stemming from the UK’s decision to leave the European Union, according to a research firm.

AmInvestment Research, which is maintaining its “overweight stance” on the timber sector, said it believed the two counters were undervalued compared with plantation stocks.

“Notwithstanding the decline in timber prices since the start of the year and recent volatile crude palm oil (CPO) prices, the value of both stocks continue to be hinged on their plantation segments.

“CPO price remains as a key catalyst, while a key risk is a further decline in prices, which are currently at the RM2,300 to RM2,400 levels,” it said in a report yesterday.

The research firm said, however, Jaya Tiasa and Ta Ann would continue to benefit from the weak ringgit at above the RM4 to the US dollar. It had a “buy” call for both stocks with Jaya Tiasa’s fair value pegged at RM2.18 a share, while Ta Ann Holdings’ at RM3.88.

It added log export prices were sustained at US$220 a cu m though plywood prices remain weak at below US$480 a cu m.

A positive is the removal of the overhang on the future of their timber concessions. Sarawak Chief Minister Tan Sri Adenan Satem had said that he was not looking at breaking up the concessions to the big six timber groups.

The research firm explained its “buy” for Jaya Tiasa was an unchanged fair value of RM2.18 a share based on the financial year 2016 forward (FY16F) price-to-earnings (PE) of 25 times. At 25 times, this was three notches below its 10-year forward PE of 28 times.

For Ta Ann, it maintained a “buy”, with a tweaked fair value of RM3.88 a share (versus RM3.99 a share ex-bonus previously), based on a PE of 12 times (versus 10 times previously) on a cut FY16F earnings per share.

“At the current level, the market appears to be treating the timber division to be at depressed valuations, although this could be attributed to continuing uncertainties at its Tasmania operations.

“Current catalysts include any weakening of the ringgit, and upward trending CPO and timber prices. The risks include a strengthening domestic currency, further pullbacks in CPO prices, and lower-than-expected fresh fruit bunches and CPO production.

“Given the lack of capex requirements for further planting, we now estimate a 16 sen a share dividend (ex-bonus) for FY16F-FY17F for a payout ratio of 45%-58% versus FY15’s 39% and FY14’s 60%. This translates into a yield a 5% for FY16F,” said AmInvestment.

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