JAYA TIASA HOLDINGS BHD

Target price: RM1.65

JAYA Tiasa reported a robust set of first quarter financial year 2018 earnings (an increase of 151.6% quarter-on-quarter and an increase of 18.6% year-on-year) on the back of stronger plantation earnings vis-à-vis its timber segment.

Affin Hwang capital expects contribution from the former to further accelerate as matured acreage increases despite plantation contributing already more than 90% of earnings.

“On this note, valuations are still attractive, against historical mean levels (40% discount) and even amongst peer planters (50% discount).

“Jaya Tiasa remains our top sector pick,” said Affin Hwang Capital.

Jaya Tiasa’s earnings contribution has been mainly derived from the palm oil division.

The rising matured palm trees are boosting the fresh fruit bunches (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 weaknes 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 current levels, Jaya Tiasa’s price-earnings multiple of 10.5 times for 2018, versus its past-3year average of 18.3 times looks attractive, in the research house’s 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 FY18 earnings to come from the palm oil plantation division.

“We leave our FY18-20E earnings unchanged.

“We reaffirm our buy rating on Jaya Tiasa and sum-of-total-partsderived 12-month target price of RM1.65 based on an unchanged 8 times 2018 PE multiple for the timber division, a 15 times 2018 PE multiple for the plantation division and one times price-to-book ratio for the forest plantation.”