-  We maintain BUY on Jaya Tiasa with an unchanged fair value of RM3.16/share, based on a PE of 20x on FY15F EPS of 15.8 sen. The valuation is one notch above its 5-year average forward PE of 19x.

-  Jaya Tiasa posted a core net profit of RM14.6mil in 4QFY14 (+61% QoQ; +293% YoY), bringing the FY14 total to RM69.0 mil (vs. +RM3.6mil in FY13).

-  This was below expectations, accounting for 58% and 71% of our and consensus forecasts, respectively. It proposed a first and final dividend of 1.5 sen/share (FY13: 1 sen) – translating to a payout of ~21% of its core earnings and in line with its dividend policy of 20%. We had expected a net payout of 2.6 sen/share.

-  The shortfall in its FY14 results was mainly due to a significant increase in cost categorised under “Others & Admin Expenses”, which rose by 54%. Note the effective tax rate is also higher by ~3ppts at 32%.

-  The FY14 results were supported by the strong performance of the logs division. The log ASP improved by 17% and 11% in RM and USD terms to RM654/cu m and USD202/cu m, respectively, from a year earlier, though sales volume dipped 25% YoY.

-  Crucially, the oil palm division’s OER has increased significantly to 17.7% in 4QFY14 vs. 15.1% in 3QFY14 and 14.5% in 4QFY13. Operationally, the plantation division has improved, with an estimated EBIT of RM50.3mil in FY14 vs. a loss of RM7.6mil in FY13.

-  We believe this was partly contributed by the improved OER and the commissioning of its 2nd palm oil mill, which will reduce its transportation cost.

-  However, the FFB yield (per mature ha) remained depressed at only 13.8%, the same as in the year earlier. This could be due to more stringent requirements imposed on contractors to ensure that only fairly suitable fruits are put through the mills.

-  We believe that the FFB yield would improve in the coming quarters, along with a further enhancement in OER as trees planted four to five years ago mature further.

-  The prime mature areas will rise from >20% of total planted areas in FY14 to >30% in FY15F and further to >50% by FY16F, which will significantly improve FFB production yield as well as the OER.

-  The stock will be a prime beneficiary of an improvement in CPO prices, premised on the strong growth potential of its oil palm division.

Source: AmeSecurities