Jaya Tiasa Holdings Bhd
(Nov 6, RM2.10)
Maintain “reduce” with a target price (TP) of RM1.80: Jaya Tiasa Holdings’ (Jaya Tiasa) third quarter of financial year 2014 (3QFY14) log production fell 5.4% year-on-year to 250,268 cu m. Similarly, the average monthly log production year-to-date is lower at 81,370 cu m as compared with 86,310 cu m nine months of financial year 2013 (9MFY13) (2013 monthly average production: 88,539 cu m). The drop in log production was partly attributed to bad weather that has slowed down the harvesting process.
Due to the tight global supply of logs after Myanmar’s ban, the average selling prices (ASPs) for Jaya Tiasa’s logs and plywood in 2QFY14 increased 10.7% and 3.1% respectively to RM696 per cu m and RM1,876 per cu m. This has helped to mitigate a larger drop in Jaya Tiasa’s timber division revenue contribution due to lower logs and plywood sales volume.
Based on current log production and ASPs, we estimate that the timber division will generate revenue of about RM165 million in 1QFY15 (1QFY14 revenue: RM167.6 million). We opine the timber division’s revenue could be affected by the lower log production and a slowdown in demand for plywood but supported by the firm timber ASPs.
We maintain our “reduce” rating on Jaya Tiasa with a sum-of-parts-derived TP of RM1.80 (implied 14 times of calendar year 2015 estimates), as we think the stock looks overvalued and has already priced in the expected sharp earnings growth for the palm oil division. We value Jaya Tiasa based on 12 times 2015 estimate earnings per share for its timber division, 14 times (plantation) and 1 time book value (forest plantation).— AffinHwang Capital, Nov 5
This article first appeared in The Edge Financial Daily, on November 7, 2014.