- We reiterate our BUY call on Jaya Tiasa with an unchanged fair value of RM2.85/share based on an 18x PE FY15F EPS of 15.8 sen.

- Jaya Tiasa yesterday announced a 1HFY14 core net profit of RM38.9mil (+324% YoY) – representing only 33%-34% of our and consensus forecasts. No dividend was declared.

- The shortfall was partly due to a lower CPO average price achieved at ~RM2,153/tonne (-16.8% YoY) – 12% below our assumption of RM2,450/tonne for the full year.

- This is underpinned by a continuing low OER of 15%, despite FFB production volume of 447,346 tonnes (+20% YoY), which is 2% ahead of our forecast. As such, CPO production at 39,231 tonnes (+15.5% YoY) accounted for only 43% of our estimate.

- We maintain our numbers as the group could still manage to make up for the shortfalls in numbers given the anticipated higher CPO prices.

- Log sales at 382,360 cu m (-31% YoY) were below expectations – accounting for 41% of our forecast, albeit mitigated by a higher ASP of RM624/cu m (+20% YoY) vs. our assumption of only RM563/cu m.

- Plywood sales also fell to 79,029 cu m (-20% YoY), though this is within expectations as it accounted for 52% of our forecast; ASP at RM1,867/cu m (+12% YoY) was 18% ahead of our projected amount.

- Despite the continuing underperformance of its plantation division due to the young maturity of its oil palm trees, we remain convinced that it is reaching an inflexion point.

- 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.

- Given the growth prospects on existing plantations alone over the next 2-5 years, Jaya Tiasa will be least affected by Wilmar’s recent unveiling of its new “No Peat, No deforestation” policy.

- Additionally, Jaya Tiasa would have no issue to continue planting on its remaining landbank in compliance with Wilmar’s policy as these areas of 7,000-8,000ha have already been cleared and ready to be developed.

- We also do not rule acquisitions of existing plantations later down the road to further spur the growth of the division. We do not believe it to be a priority in the short and medium term.

Source: AmeSecurities