• A young planter comes to the fore and slated for strong long term growth. According to Bloomberg, JTIASA’s earnings is expected to regis ter a s olid 40% CAGR from FY16-18, spurred by 1) rising primed mature estate areas under the group’s planted areas of ~69,500 ha (FY12: 58k ha); 2) young average palm tree age profile of approximately 7 years over 64% in FY17-18 (FY16: 54%); 3) improving FFB and CPO production amid rising yields and 4) benefiting from strong FCPO prices. Overall, the bullish palm-oil division’s contribution will anchor future earnings growth for the group, offsetting the weakness in timber division, mainly due to lower timber product prices and production amid the stringent environmental safeguards and the diminishing natural resources in Malaysian forests.

• Undemanding valuations. JTIASA is trading at 14.1x P/E, which is 7% below its peers P/E of 15.4x, supported by a robust FY16-18 earnings CAGR of 40%. In terms of P/B, current valuation of 0.72x is trading at a huge 53% discount to its peers 1.55x.

• A bullish cup & handle formation. The cup and handle formation suggests that the next leg up is likely taking place now. A decisive handle pattern breakout in the near term could spur prices higher, supported by upticks in indicators. A strong breakout above RM1.37 (29 Sep & 17 Oct high) will push share prices above RM1.42 (50% FR) and RM1.55 next. We are targeting RM1.65 (the potential pattern breakout). Key supports are RM1.31 (10-d SMA) and RM1.27 (30-d SMA). Keep a stop at RM1.25.

Source: Hong Leong Investment Bank Research - 19 Oct 2016