Jaya Tiasa Holdings Bhd
(Sept 30, RM5.26)
Maintain buy at RM5.26 with unchanged target price of RM9.30: Jaya Tiasa recorded a surge in 1QFY04/12 net profit to RM55.9 million (+149% year-on-year) on higher revenue of RM260 million (+40.1% y-o-y). Earnings are in line with our expectations, accounting for 25.1% and 27.1% of our and consensus full-year FY12 forecasts.

Growth was driven by a combination of stronger revenue and firmer Ebit margin of 31.7% (versus 17.6% in 1QFY11). This is largely underpinned by: i) an increase in fresh fruit bunches (FFB) production to 145,158 tonnes (+78.9% y-o-y) which led to a more than double increase in crude palm oil (CPO) sales volume, ii) higher ASPs for FFB (+30% y-o-y) and CPO (+38% y-o-y), iii) higher log ASPs (+37% y-o-y) and iv) an increase in log production to 252,999 m3 (+16.75% y-o-y). The latter is a result of improvements in weather conditions compared with mid-2010. No interim dividend was declared for this current quarter.

On a sequential basis, 1QFY04/12 net profit picked up slightly by 2.6% as a result of higher revenue of RM260 million (+1.7% quarter-on-quarter). This was lifted by an increase in FFB production and sales volume, up by 38% and 60% respectively and also an increase in CPO sales volume, up by 34%. Ebit margins improved by one percentage point to 31.7% as a result of: i) higher log production volume reaching 252,999m3 (+9.3% q-o-q) and, ii) higher plywood ASPs.

Jaya Tiasa's plantation division has taken over as the main earnings contributor, accounting for +65.1% of 1QFY12 profit before tax (versus +47% in 4QFY11). We continue to expect oil palm plantation to be the main growth driver going forward as a result of: i) increase in matured acreage which leads to higher FFB production volume; and ii) fluctuating log production volume as a result of unfavourable wet weather conditions disrupting supply.

Jaya Tiasa expects reconstruction efforts will start to kick in by year-end (4QCY11), which will feed through to higher timber prices.

We maintain our 'buy' rating and an unchanged RNAV derived target price of RM9.30. At current price level, the company is trading at 7.7 times CY12 PE, a 38.4% discount to its historical average PE of 12.5 times, which is highly attractive. We continue to like Jaya Tiasa for its: i) exposure to recovering timber prices on the back of increasing demand from Japan and India, and ii) diversification into palm oil coupled with increasing matured acreage ' Affin Investment, Sept 30


This article appeared in The Edge Financial Daily, October 3, 2011.