AmWatch - Jaya Tiasa : Crucial next six months to show much better FFB yield BUY, 19 Mar 2015

STOCK FOCUS OF THE DAY

Jaya Tiasa : Crucial next six months to show much better FFB yield            BUY

We maintain BUY on Jaya Tiasa, with a lower fair value of RM2.13/share, as we roll forward our valuation base to FY16F, pegged to a PE of 20x on an EPS of 10.7 sen/share. Excluding the timber business, our fair value implies a plantation valuation of only ~RM32,000/ha (planted area at ~67,000ha) vs. recent market transactions of over RM80,000/ha. This, we believe, is fair given the poor performance of the plantation division.

Jaya Tiasa’s share price has fallen sharply due to the disappointments in its oil palm plantation and plywood businesses. It posted a 2QFY15F core net loss of RM2.9mil, stemming from losses at its plantation and plywood divisions, which may worsen in 3QFY15 due to sharply lower volumes in FFB output. Our revisions bring down our FY15F and FY16F earnings forecasts by 42% and 37%, respectively. This is on the back of a 15% cut in our FFB output projections for each of FY15F and FY16F. We have also cut our net profit projection for the manufacturing division for FY15F to RM0.5mil from RM8mil previously.

Our FFB yield assumptions are cut to 13.4 tonnes/ha for FY15F as it continues to be dogged by inefficient plantation operations. Its FFB output had dipped sharply for January and February 2015. We expect it to improve from March onwards, with an average monthly output of 65,000/tonnes for the rest of FY15F and moving into FY16F. We had earlier expected it to breach the 1mil tonne mark by FY6F. We do not rule out that possibility, but now project a more conservative forecast of 900,000 tonnes. A consensus re-rating is unlikely to occur if it fails to show a convincing turnaround in FFB yield within the next six months to Sept 2015. Risks continue to include a dip in log demand from India, widening losses at the manufacturing division, and FFB yield remaining stagnant.

ar.

Others :

Top Glove Corrp : Interim earnings boosted by strong USD           HOLD

Berjaya Sports Toto : Lower dividends    HOLD

Banking Sector : Mixed trend for foreign shareholding of banking stocks               NEUTRAL

Economic Update : Current monetary policy stance in the US remains appropriate for now

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