Notwithstanding the decline in timber prices since the start of the year and recent volatile CPO prices, AmInvestment Bank said the value of both stocks continue to hinge on their plantation segments.
KUCHING: Analysts are keeping their overweight stance on the timber sector, particularly for Sarawakian moguls Jaya Tiasa Holdings Bhd (Jaya Tiasa) and Ta Ann Holdings Bhd (Ta Ann) as both stocks will benefit from the weakening ringgit stemming from news of the UK’s decision to leave the EU.
The team at AmInvestment Bank Bhd (AmInvestment Bank) broadly believed both stocks were undervalued compared to plantation stocks.
Yesterday, Jaya Tiasa closed at RM1.17 which was seven sen higher while Ta Ann saw its stocks rising by five sen to close at RM3.19.
Notwithstanding the decline in timber prices since the start of the year and recent volatile CPO prices, the value of both stocks continue to be hinged on their plantation segments, AmInvestment Bank said.
“Crude palm oil (CPO) price remains as a key catalyst, while a key risk is a further decline in prices, which are currently at the RM2,300 and RM2,400 levels,” it added in a June 27 report.
“However, both Jaya Tiasa and Ta Ann will continue to benefit for their timber segment from the weak ringgit at above the RM4 to the US dollar. We understand that log export prices are currently sustained at around US$220 per cubic metre, though plywood prices remain weak at below US$480 per cubic metre.”
A positiveboost to the timber sector, it said, would be the removal of the overhang on the future of thetwo firms’ timber concessions.
“Sarawak Chief Minister Datuk Patinggi Tan Sri Adenan Satem has said he is not looking at breaking up the concessions to the big six timber groups. The state wants to work with the big boys to implement a sustainable timber policy,” it noted.
For Jaya Tiasa, AmInvestment Bank maintained its buy call with an unchanged fair value of RM2.18 per share, reiterating that Jaya Tiasa is a “fresh fruit bunch recovery story”.
“Pursuant to its latest announcement on Bursa Malaysia, it has practically met our FFB production assumption of 900,000 tonnes for FY16F.
“In May 2016, it achieved an FFB harvest of 84,376 tonnes, for an 11-month production of 828,670 tonnes – accounting for 92 per cent of our full-year projection. It now just requires 71,330 tonnes to hit our FY16F harvest assumption.
“We maintain our FFB yield assumptions at 16.6 tonnes and 17.8 tonnes for FY17F and FY18F, respectively. The primary concerns now are the OER and highest expenses for the palm oil division. The average age of its palm tree is ~8 years.”
Meanwhile for Ta Ann, AmInvestment Bank also maintained its buy call with a tweaked fair value of RM3.88 per share. The firm revised downwards its FY16F-FY18F earnings by 12 to 16 per cent to account for lower log and plywood sales volume, as well as lower log price assumptions.
“We continue to expect Ta Ann to show significant FFB growth of 14 to 15 per cent annually over FY16F to FY18F as more palm trees mature. The average age of its palm trees now stands at 7.5 years.
“The market is giving an implied value of only RM25,500 per planted hectare for the palm oil division, versus the industry’s range of RM50,000 to RM80,000 per planted hectare.
“At the current level, the market appears to be treating the timber division to be at depressed valuations, though this could be attributed due to continuing uncertainties at its Tasmanian operations.”