Looking Good on Most Fronts

Jaya Tiasa reported a robust set of 1Q FY18 earnings (+151.6% qoq, +18.6% yoy) on the back of stronger plantation earnings vis-à-vis its timber segment. We expect contribution from the former to futher accelerate as matured acreage increases despite plantation contributing already more than 90% of earnings. On this note, valuations are still attractive, against historical mean levels (~40% discount) and even amongst peer planters (~50% discount). Jaya Tiasa remains our top sector pick. Reaffirm BUY and TP of RM1.65.

Plantation Providing Growth for the Group

Jaya Tiasa’s earnings contribution has been mainly derived from the palm-oil division. The rising matured palm trees are boosting the FFB and CPO production as yield and the oil-extraction rate (OER) improve, and should provide earnings growth for the Group, offsetting weaknes in CPO prices.

Lacklustre Timber Division

The timber division has been lacklustre despite higher log prices partly due to lower export quotas, higher timber-product production costs and diminishing natural resources in Malaysian forests.

Valuation Looks Appealing

At current levels, Jaya Tiasa’s PER multiple of 10.5x for CY18E, vs. its past- 3-year average of 18.3x looks attractive, in our view. We opine investors should start viewing the Group as more of an upstream plantation company and less of a timber company, considering that we expect more than 90% of its FY18E earnings to come from the palm oil plantation division.

Reaffirm BUY Rating and TP of RM1.65

We leave our FY18-20E earnings unchanged. We reaffirm our BUY rating on Jaya Tiasa and SOTP-derived 12-month target price of RM1.65 based on an unchanged 8x 2018E PER for the timber division, a 15x 2018E PER for the plantation division and 1x PBR for the forest plantation. We continue to like Jaya Tiasa as we believe earnings will continue to grow on the back of higher contribution from its plantation division, underpinned by increasing mature estates and improving FFB and CPO production. Jaya Tiasa is also one of Affin Hwang’s top alpha picks for 2018. Downside risk: major disruptions in log and palm-oil plantation.

Source: Affin Hwang Research - 22 Jan 2018