Tuesday, March 19

Jaya Tiasa’s earnings to rise going forward

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In a report, the research team at Affin Hwang Investment Bank Bhd (AffinHwang Capital) expect Jaya Tiasa’s earnings to rise going forward, driven by its palm-oil plantation division.

KUCHING: Jaya Tiasa Holdings Bhd’s (Jaya Tiasa) earnings is expected to rise going forward, driven by its palm-oil plantation division and the possible recovery of its timber division, analysts observed.

In a report, the research team at Affin Hwang Investment Bank Bhd (AffinHwang Capital) expect Jaya Tiasa’s earnings to rise going forward, driven by its palm-oil plantation division.

“This is largely underpinned by higher crude palm oil (CPO) production and prices as well as lower production costs,” it said. “Also, we forecast the timber division to turn profitable in the financial year 2019 estimate (FY19E), mainly attributable to higher plywood prices.”

It further forecast FY19 to FY21E earnings for Jaya Tiasa’s palm oil plantation division to be driven by rising CPO production (as more plantation areas reach prime age and higher OER), better prices and lower production costs.

“We expect CPO prices to increase in the first quarter of 2019 (1Q19) as Malaysian palm-oil inventory declines given the seasonal production declines and higher world palm oil consumption.

“For Jaya Tiasa, we forecast CPO ASP to be RM2,230 to RM2,500/MT for FY19 to FY21E after prices bottomed out at RM1,720 per MT in November 2018,” it added.

AffinHwang Capital also expected Jaya Tiasa’s FFB production to continue to improve in FY19 to FY21E by four to 11 per cent y-o-y to 1.2 million to 1.3 million MT.

“For the first five months of FY19 (5MFY19), Jaya Tiasa’s FFB production has risen by 8.3 per cent y-o-y to 565,400 MT.

“The increase in Jaya Tiasa’s FFB production is underpinned by rising mature estate areas, young weighted-average palm tree age profile of approximately 10 years, and improving FFB yields from 15.9 MT per ha in FY18 to 17 to 19 MT per ha in FY19 to FY21E,” it explained.

Meanwhile, the research team expect Jaya Tiasa’s timber division to turn profitable in FY19E from loss making in FY18, mainly due to an increase in timber product ASPs (especially plywood prices) but partially offset by the decline in timber products sales volume due to lower log production in FY19 to FY21E.

“Similar to Ta Ann, Jaya Tiasa is also applying for Certificate for Forest Management Units (FMU), which allows the company to increase their log exports quota to 40 per cent from 20 per cent. Jaya Tiasa could potentially obtain the certificate by 2020,” it said.

“To ensure sustainability of log resources especially for plywood and veneer manufacturing, Jaya Tiasa has planted 32,200 ha of forest plantation, accounting for 50 per cent of its plantable area of 65,000 ha.

“The species planted include Kelampayan, Eucalyptus and G.arborea. The planted forest is not expected to contribute significantly to earnings for now since it is still in gestation period.

“Similar to Ta Ann, Jaya Tiasa is also applying for Certificate for FMU, which allows the company to increase their log exports quota to 40 per cent from 20 per cent (only for logs harvested under this FMU). Jaya Tiasa could potentially obtain the certificate by 2020,” it added.

All in, AffinHwang Capital pegged a ‘hold’ call on Jaya Tiasa.