RHB downgrades forecast on Jaya Tiasa, Ta Ann on CPO price cut
RHB Research Institute Sdn Bhd (RHB Research) has reduced its forecasts for Sarawakian corporates Jaya Tiasa Holdings Bhd (Jaya Tiasa) and Ta Ann Holdings Bhd (Ta Ann) following a sector-wide crude palm oil (CPO) price downgrade.
The research firm has downgraded the Malaysian plantation sector to “neutral” from “overweight” previously. Its CPO price assumptions have in turn been lowered to RM2,400 per tonne from RM2,700 previously for current year 2014 (CY14) and RM2,500 per tonne from RM2,900 previously for CY15.
“We believe palm oil prices are weeks away from a bottom and should strengthen in the fourth quarter (4Q) as well as CY15. That said, the current low levels could pull down the full-year average – which has led us to cut our assumptions,” it said.
However, the research house expects prices to strengthen in the 4Q14 and 2015, due to the seasonal slowdown in production in 4Q14. It explained that since 2000, CPO prices have risen by 11 per cent from end-September to end-December.
Another reason given by RHB Research was that the slower-thanexpected offtake for biodiesel in Indonesia in 2014 which was caused by pricing issues is no longer applicable, while distribution infrastructure is being developed, which should see Indonesia’s B10 programme in full swing in 2015.
Lastly, it noted that prices will strengthen due to the downside for soybean prices being limited as it is already trading at or near production cost.
“Though its stock/usage ratio will be high this year (over 30 per cent) due to a bumper crop in the US, such high ratio levels usually don’t persist,” the research house explained.
Overall, following the sectorwide price cut, RHB Research reduced its forecasts for Jaya Tiasa by 19.8 per cent for financial year 2015 (FY15) and 24.6 per cent for FY16.
Post earnings revision, its sum of parts-based (SOP-based) fair value is revised to RM1.81 per share from RM2.41 per share previously by applying an unchanged 16-fold CY15 target price-earnings (P/E) to its plantation division and 12-fold CY15 for its timber division.
Despite Jaya Tiasa’s strong fresh fruit bunch (FFB) production growth coming from increasing maturity of its estates, the research house noted that this is more than offset by the impact of lower CPO prices.
“We note that every RM100 per tonne change in CPO price would affect its earnings by six to eight per cent per annum,” RHB Research said. As such, it downgraded the stock to ‘sell’ from ‘buy’ previously.
As for Ta Ann, the research house also reduced its forecasts for the group by 22.9 per cent for FY14 and 28.2 per cent for FY15.
RHB Research’s SOP- based fair value is revised to RM3.80 per share from RM5.40 per share previously based on unchanged target P/E of 16-fold CY15 for its plantation division and 12-fold CY15 for its timber division.
It also downgraded its recommendation on Ta Ann to “neutral” from “buy” previously.