• Maintain our BUY rating on Jaya Tiasa with TP unchanged at RM1.32. At 9.6x FY21E EPS, valuations are attractive
• We expect strong earnings recovery in FY21E due to stronger CPO prices while FY22E earnings could potentially decline yoy due to lower CPO ASP forecast but partially offset by higher production
• The resumption of construction works with the easing of lockdowns and restrictive movement control orders since mid-2020 has helped to improve demand for timber products as well as prices

Strong CPO price a boost to plantation earnings

We expect Jaya Tiasa’s FY21E earnings to grow by >200% yoy due mainly to a higher contribution from the plantation division given the stronger CPO prices and lower losses at the timber division. Meanwhile, FY22E earnings are projected to be lower mainly due to a lower contribution from the oil palm division given the lower CPO ASP assumption but partially offset by higher production. No changes to our CPO assumption for Jaya Tiasa at RM2,700-2,500/MT in FY21-22E (FY20 CPO ASP: RM2,054/MT). We have seen a V-shaped recovery in CPO prices in 2020 and we believe the price will remain supported going into 1H21, underpinned by tight stock levels, concerns about CPO production given the weather uncertainties and strong prices of other edible oils. Looking at 2H21, we believe prices could potentially be under pressure as production picks up.

Commitment to promote sustainability

Jaya Tiasa has fully obtained the Malaysian Sustainable Palm Oil (MSPO) certification for all of its estates and CPO mills. This would enable the Group to provide a credible, sustainable and responsible management of their oil palm operations. Besides that, Jaya Tiasa is employing green manufacturing practices to manage and replant its forests and protect the environment and wildlife. Management targets to obtain the Forest Management Unit (FMU) certifications for all their timber licenses by 2022.

Gradual recovery in demand for timber products

Fortunately, the resumption of construction works with the easing of lockdowns and restrictive movement control orders since mid-2020 has helped to improve demand for timber products. The recovery in demand coupled with global supplies constraints for timber products would help to improve prices, in our view.

Maintain BUY with TP of RM1.32

We have not made any earnings changes in this report. Maintain our BUY rating on Jaya Tiasa with an unchanged SOTP-derived target price of RM1.32. We continue to like Jaya Tiasa given its improved earnings prospects in FY21 given the potential improvement from the oil palm and timber divisions.

Source: Affin Hwang Research - 8 Jan 2021