- We maintain BUY on Jaya Tiasa, with an unchanged fair value of RM2.40/share, based on a PE of 20x on an FY15F EPS of 12 sen/share.

- As anticipated, the Rimbunan Hijau group is setting up a CPO refinery and a kernel crushing plant, in which Jaya Tiasa has proposed to take up a 10% stake at RM1/share par value for RM5mil cash.

- The larger group intends to start operations at the refinery and kernel crushing plant by October 2016. The Rimbunan Hijau group holds the refinery licence.

- Jaya Tiasa has proposed to subscribe for a 10% stake comprising 5mil shares of RM1 each in now-dormant Borneo Edible Oils Sdn Bhd, which will be the vehicle for the project implementation.

- Borneo Edible Oils’ proposed paid-up capital will be increased to RM50mil from RM40mil now.

- The current shareholders are Rimbunan Hijau Sdn Bhd (72.5%), Rimbunan Sawit Bhd (12.5%), Palmgroup Holdings Sdn Bhd (12.5%), and Subur Tiasa Holdings Bhd (2.5%). The two ultimate major shareholders are Tan Sri Sir Tiong Hiew King and Datuk Tiong Thai King.

- Jaya Tiasa expects the subscription agreement to be completed by end-May 2015. While no details of the refinery and kernel crushing plant was provided, this is positive news for Jaya Tiasa. Risks are limited given its relatively small investment.

- Jaya Tiasa will benefit from assured take-up of its CPO production over the long term. It has over the years supplied its CPO production to an external unrelated third party – Wilmar’s subsidiary Bintulu Edible Oils Sdn Bhd.

- The proposal to set up the group’s own refinery is also timely, given that Jaya Tiasa’s FFB production is expected to surpass 1mil tonnes by FY16F.

- We remain convinced its oil palm division will reach an inflexion point in FY16F; we expect FFB and CPO production to increase by 18% and 36%, respectively.

- We expect FFB yield to improve to 17.4% in FY16F from 15.8% in FY15F (FY14: 13.8%), and OER to rise to 18% from 17.5% in FY15F (FY14: 15.5%). We expect stable state production at 1.5-1.6mil tonnes per annum.

- We believe Jaya Tiasa’s growth story has more legs on the upside, though challenges remain in the near term on low FFB yield and lacklustre plywood and veneer prices.

Source: AmeSecurities