- We downgrade Jaya Tiasa Holdings Bhd to HOLD, with a slightly downward revised fair value ofRM8.24/share (vs. RM8.37/share previously), based a PE of 13x its annualised FY12Fcore EPS of 63.4 sen (vs. basic EPS of 64.4 sen previously).
- The stock has reached our previous fair value since lastweek after it announced a 2-for-1 bonus issue (est. total of 645mil bonusshares) and a 15% placement of new shares (est. 42mil shares that may raiseRM300mil, prior to bonus issue ' which will partly lower borrowings and keepgearing in check).
- Its proposed dividend of one treasury share for every 20 sharesheld will go ex- on 6 April 2012. We believe Jaya Tiasa's latest proposals areaggressive measures to spur trading liquidity of its shares and would go a longway towards enhancing the attractiveness of the stock.
- We welcome the proposals in the belief that management is signallingstrong intent in fiscal prudence (though gearing remains manageable), whilepreparing the group for its next phase of mid-cycle growth in the oil palmsector, with potential landbank acquisition ahead.
- Our downward adjustment to FY12F earnings follow theresult for the three months to 31 January 2012, which came in slightly belowexpectations due to lower CPO prices (QoQ and YoY), and a decline in log pricesgiven the significant slowdown of exports to India in view of the weakeningRupee during the period.
- Its net profit of RM143mil (+54% YoY) for the nine monthsto 31 January accounted for 83% of our previous annualised FY12F net profit ofRM172mil. However, excluding an exceptional gain of RM27.6mil on the disposalof a subsidiary, the core net profit of RM115mil (+24.4% YoY) would bring that downto 67% (vs. 70% now given our revised annualised earnings to RM164mil).
- Log prices have improved in view of the strengtheningRupee in the recent months. Sarawak Timber Association this week said new ordersfrom Japan's plywood importers had continued to flow in since late last yearand that Sarawak manufacturers wouldbenefit from anticipated stronger demand from Japan at the start of spring nextmonth.
- The oil palm division, which accounted for over 60% of itslatest quarterly earnings, is expected to continue to perform significantlybetter than the timber division given the current strong CPO prices.
- Our target PE of 13x is conservative vis-''-vis its forwardPE mean of 20x, and well within 1+SD and -1SD of 9x and 31x, respectively.