This article first appeared in The Edge Financial Daily on January 23, 2018

Jaya Tiasa Holdings Bhd
(Jan 22, RM1.09)
Maintain buy at an unchanged target price (TP) of RM1.65: Jaya Tiasa Holdings Bhd’s earnings contribution has been mainly derived from the palm oil division. The matured palm trees are boosting fresh fruit bunch (FFB) and crude palm oil (CPO) production as yield and the oil-extraction rate (OER) improve, and should provide earnings growth for the group, offsetting weakness in CPO prices.

The timber division has been lacklustre despite higher log prices partly due to lower export quotas, higher timber-product production costs and diminishing natural resources in Malaysian forests. 

At the current levels, Jaya Tiasa’s price-earnings ratio (PER) multiple of 10.5 times for 2018, versus its past three-year average of 18.3 times, looks attractive in our view. We opine investors should start viewing the group as more of an upstream plantation company and less of a timber company, considering that we expect more than 90% of its financial year 2018 (FY18) earnings to come from the palm oil plantation division.

We leave our FY18 to FY20 earnings unchanged. We reaffirm our “buy” rating on Jaya Tiasa and sum-of-parts-derived 12-month TP of RM1.65 based on an unchanged eight times 2018 PER for the timber division, a 15 times 2018 PER for the plantation division and a one time price-to-book ratio for forest plantations. We continue to like Jaya Tiasa as we believe earnings will continue to grow on the back of a higher contribution from its plantation division, underpinned by increasing mature estates and improving FFB and CPO production. Jaya Tiasa is also one of Affin Hwang’s top alpha picks for 2018. 

Downside risks include major disruptions in log and palm-oil plantations. — Affin Hwang Research, Jan 22