- We maintain HOLD on Jaya Tiasa, with an unchanged fair value of RM1.18/share, based on an FY16F PE of 15x.

- Jaya Tiasa’s subsidiary Multi Greenview Sdn Bhd has invested in a 9.87% stake (140mil shares) in oil palm plantation group Rimbunan Sawit Bhd (RSB) for RM70mil cash or 50 sen/share, via two related-party transactions.

- The price represented a 7.4% discount to the five-day VWAMP of 54 sen/share through 23 Oct 2015. Jaya Tiasa wants to tap into its growth prospects and the potential capital appreciation as well as to expand its interest in the oil palm sector.

- The shares were acquired from Pemandangan Jauh Plantation (PJP – 100mil shares) and Tiong Toh Siong Holdings (TTSH – 40mil shares). Funded via loans, the acquisition is expected to be completed by 29 Oct 2015.

- The average cost of investment by the sellers was at 40 sen/share. Tan Sri Datuk Sir Diong Hiew King @ Tiong Hiew King is a major shareholder of Jaya Tiasa, and a director and major shareholder of RSB, PJP and TTSH.

- Based on FY14 numbers, the acquisition price works out to be at an EV/ha of ~RM63,000 – comparable to previous transactions in Sarawak of over RM70,000. The EV/ha for brownfield land bank in Sabah and Sarawak are reportedly to be in the range of RM62,000-RM68,000.

- It appears undemanding, but for RSB’s low FFB yield. RSB recorded an FFB production of 436,584 tonnes in FY14, a decline of 9% from the previous year’s and representing a yield only 11.2 tonnes/mature hectare – partly due to the lack of harvesters.

- RSB posted a net loss of ~RM10mil in 2QFY15 for a cumulative loss of RM22.3mil for the six months to 30 June 2015.

- Jaya Tiasa itself is also registering low FFB yields, at only 12.5 tonnes/ha for FY15. We expect yields to improve, though the timing of a sustained uplift in volume is still uncertain. It has been affected by the previous contractor leaving large portions (5,000ha-10,000ha) of its estates derelict and unharvested; rehabilitation is continuing.

- The acquisition will not have a material impact on its financials. We maintain HOLD, pending clarity of improving FFB yields, while log production is expected to be lowered due to a quota cut.

- Mitigating factors include the weaker ringgit and the sustaining of high log prices amid the shrinking supply out of Sarawak.

Source: AmeSecurities Research - 27 Oct 2015