- We upgrade Jaya Tiasa to BUY, with a higher fair value of RM1.96/share (vs. RM1.18/share previously), based on an FY16F PE of 25x – premised on a steady improvement in FFB yields and strong timber prices in 1QFY16.

- The 25x PE is 3 notches below its10-year forward PE of 28x. At our fair value, we are pricing the oil palm division at an EV/planted ha of RM24,000 – cheap by any measure. At the current price, the implied value is only RM14,000/ha. (See Exhibit 5 for the implied valuations)

- Recall the EV/ha for brownfield land bank in Sabah and Sarawak is reportedly in the range of RM62,000- RM68,000. We believe the current discount is unjustified, notwithstanding its low FFB yield (at only 12.5 tonnes/mature ha for FY15). Recall it has been affected by a contractor previously leaving large portions (5,000ha- 10,000ha) of its estates derelict; rehabilitation is continuing. Discounting 10,000ha from the planted hectarage still gives an EV/planted ha of RM28,000.

- Jaya Tiasa yesterday reported a 1QFY16 core net profit of RM31mil (+97% QoQ, +15% YoY), accounting for 40% and 33% of our and consensus forecasts, respectively.

- FFB production totaled 274,000 tonnes (+42% QoQ, +9% YoY) – accounting for 30% of our full-year projection. The oil palm division eked out a PBT of RM2.4mil for 1QFY16.

- It reported FFB production of 95,599 tonnes for October – bringing the total YTD to 370,151 tonnes, +13% from the previous four-month period.

- Despite 1QFY historically being the peak quarter, we believe it is still on track to meet or even slightly surpass our 900,000 tonne forecast. For that, it only needs to harvest 66,231 tonnes/month for the rest of FY16 vs. the average of 61,665 tonnes/month for FY15. As such, we maintain our numbers for now.

- Log prices for 1QFY16 remained strong, registering at an estimated US$228/cu m (+7% QoQ, YoY), while plywood prices improved by 12% QoQ and 11% YoY.

- Note that according to its FY15 annual report, Jaya Tiasa’s log quota has been cut by 15% to 78,000 cu m/month from 92,000 cu m/month. We have assumed a 24% cut. We maintain our sales volume assumption for now.

- We upgrade Jaya Tiasa to BUY, on the back of improved FFB yields over the last four months and sustaining high log prices. The stock provides a cheap entry into the oil palm play.

Source: AmeSecurities Research - 27 Nov 2015