Following  our  recent  CPO  price  upgrade,  we  raise  our  earnings projections for  JT  by 10.2% for FY06/14 and 14.6% for FY06/15. We lift our SOP-based FV to MYR2.56 (from MYR2.20) and upgrade the stock to a  BUY.  We  believe  JT’s  plantation  division  will  lead  its  medium-term growth,  as  higher  CPO  prices  and  strong  FFB  production  growth  will boost earnings contribution to c. 45% in FY15 (from 6-7% in FY13).

• Upgrading CPO price  assumptions.  We have upgraded our in-house CPO  price  assumptions  for  CY14  and  CY15  to  MYR2,700  and MYR2,900  per  tonne  respectively  from  MYR2,600  previously.  We maintain our price assumption for CY13 at MYR2,400/tonne.
• Four main factors driving the upgrade. These are: i) a stronger global economy,  which  means  food  demand  will  continue  to  grow,  ii) Indonesia’s  lacklustre  production  growth  on  the  double  impact  of  dry weather in 2012 and 2013, iii) mandatory biodiesel implementation in the world’s two biggest palm oil producing countries, and iv) production cost to remain flattish-to-lower on significantly cheaper fertilisers following the potash cartel breakup in mid-2013.
• Raising  forecasts.  We  have  raised  our  forecasts  for  JT  following  the 10.2%  price  hike  for  FY06/14  and  14.6%  for  FY06/15.  Our  CPO  price assumptions  are:  MYR2,550/tonne  for  FY14  (from  MYR2,375)  and MYR2,800/tonne for FY14 (from MYR2,600).
• Upgrade to BUY.  Post-earnings revision, we lift our SOP-based  FV  to MYR2.56  (from MYR2.20),  based on  an  unchanged  CY14 target P/E of 16x  on  its plantation division and  12x  on  its timber division. We believe JT’s  plantation division  will be its main growth driver in the medium term as  higher  CPO  prices  and  strong  FFB  production  growth  will  boost earnings contribution from the plantation division to approximately 45% in FY15 (from 6-7% in FY13). 

Financial Exhibits

SWOT Analysis

Company Profile
Jaya Tiasa is involved in the manufacturing and distribution of plywood, logs and other timber products and is also involved  in the cultivation of oil palms.

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Source: RHB