CPO to boost Jaya Tiasa in FY20 to FY22

KUCHING: Jaya Tiasa Holdings Bhd’s (Jaya Tiasa) earnings are expected to turn profitable in FY20 onwards, mainly attributable to higher profit contribution from the palm-oil plantation division; however the timber division will remain challenging with high production costs at the plywood division.

For FY20 to FY22, the team at Affin Hwang Investment Bank Bhd (AffinHwang Capital) expect Jaya Tiasa’s palm-oil segment to contribute more than 75 to 80 per cent of its total revenue, compared to 72 per cent in FY19. The remainder will be derived from its timber division.

“We are expecting Jaya Tiasa’s fresh fruit bunch (FFB) production to continue to improve in FY20-22E by six to eight per cent year on year (yo-y) to 1.18 million to 1.32 million metric tonnes (MT),” it said in its notes, adding that for the first five months of FY20 (5MFY20), Jaya Tiasa’s FFB production rose by 9.5 per cent y-o-y to 619,300MT.

“We continue to expect an increase in Jaya Tiasa’s FFB production, to be underpinned by rising prime mature estate areas; a prime weighted-average palm tree age profile of circa 11 years; and improving FFB yields.”

To recap, Jaya Tiasa’s plantable oil palm area of 69,600 hectares (ha) has been fully planted since 2016.

Of the total planted area, about 80 per cent was prime mature as at end-FY19 versus 75 per cent at end-FY18.

Affin Hwang Capital expect the prime mature area to increase above 85 of the planted area in FY20.

“We forecast its oil extraction rate (OER) to improve to 19 or 20 per cent in FY20 and FY22 from 18.1 per cent in FY19.

For 5MFY19, Jaya Tiasa’s CPO production increased by 9.2 per cent y-o-y to 117,400MT.” Meanwhile, CPO prices have been on a rising trend since mid-October 2019, and at endDecember 2019, it went above the RM3,000 per MT level for the first time since early January 2017.

Affin Hwang Capital believed the anticipation of higher demand growth rate for palmoil products as compared to the production growth rate has boosted CPO prices.

“For Jaya Tiasa, we now expect CPO prices to average at RM2,350 to RM2,600 per MT for FY20 to FY22 from RM1,935 previously.

“We believe the higher

CPO prices in FY20 will be underpinned by slowing growth in the global production of palm oil, rising world consumption of palm-oil products for food as well as the biofuel sector, declining global stocks of palmoil as consumption surpasses production and tightness in the supply of other edible oils.”

Notably, Jaya Tiasa’s log production has been on a downtrend since FY12, mainly attributable to the diminishing natural resources, more stringent environmental safeguards as well as a decline in log extraction quota – due to a decline in its timber concession area given that some concession area licenses were not renewed.

“However, we expect Jaya Tiasa’s log production for FY20E to increase by 17 per cent y-o-y to 287,648 cubic metres but decline again to 203,677 to 208,677 cubic metres for FY21-22E, from 245,342 cubic metres in FY19.

“The reason for the increase in log production for FY20E would be mainly due to salvage logging being done at the Baleh Hydroelectric Project (HEP) area.

“Similar to other timber companies, Jaya Tiasa is in the midst of applying for the certificate for Forest Management Units (FMU), which allows the company to increase its log exports quota to 40 per cent from 20 per cent.

“Jaya Tiasa could potentially obtain the certificate by 2022 for its entire timber concession area.”