Timely boost for Jaya Tiasa from Rimbunan Hijau’s proposed refinery

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KUCHING: As anticipated by analysts, the Rimbunan Hijau group is setting up a CPO refinery and a kernel crushing plant, in which Jaya Tiasa Holdings Bhd (Jaya Tiasa) has proposed to take up a 10 per cent stake for RM5 million cash.

AmResearch Sdn Bhd (AmResearch) highlighted the larger group intends to start operations at the refinery and kernel crushing plant by October 2016. The Rimbunan Hijau group holds the refinery licence.

Jaya Tiasa has proposed to subscribe for a 10 per cent stake comprising five million shares of RM1 each in Borneo Edible Oils Sdn Bhd, which will be the vehicle for the project implementation.

Borneo Edible Oils’ proposed paid-up capital will be increased to RM50 million from RM40 million now.

The current shareholders are Rimbunan Hijau Sdn Bhd, Rimbunan Sawit Bhd, Palmgroup Holdings Sdn Bhd, and Subur Tiasa Holdings Bhd.

The two ultimate major shareholders are Tan Sri Sir Tiong Hiew King and Datuk Tiong Thai King.

“Jaya Tiasa expects the subscription agreement to be completed by end-May 2015. While no details of the refinery and kernel crushing plant was provided, this is positive news for Jaya Tiasa. Risks are limited given its relatively small investment.

“Jaya Tiasa will benefit from assured take-up of its CPO production over the long term. It has over the years supplied its CPO production to an external unrelated third party – Wilmar’s subsidiary Bintulu Edible Oils Sdn Bhd,” said AmResearch Sdn Bhd.

The proposal to set up the group’s own refinery is also timely, given that Jaya Tiasa’s FFB production is expected to surpass one million tonnes by FY16F.

“We remain convinced its oil palm division will reach an inflexion point in FY16F; we expect FFB and CPO production to increase by 18 per cent and 36 per cent, respectively. We expect FFB yield to improve to 17.4 per cent in FY16F from 15.8 per cent in FY15F, and OER to rise to 18 per cent from 17.5 per cent in FY15F.

“We expect stable state production at 1.5-1.6 million tonnes per annum. We believe Jaya Tiasa’s growth story has more legs on the upside, though challenges remain in the near term on low FFB yield and lacklustre plywood and veneer prices.”