Ta Ann and Jaya Tiasa to gain from weakening ringgit after Brexit.
KUALA LUMPUR: AmInvestment Research is maintaining its Overweight stance on the timber sector, with Buy calls for Jaya Tiasa Holdings (fiar value of RM2.18 a share) and Ta Ann Holdings (fair value RM3.88).
It said on Monday both stocks will benefit from the weakening ringgit stemming from news of Britain's decision to leave the EU.
“Broadly, we believe both stocks are undervalued compared to plantation stocks. Notwithstanding the decline in timber prices since the start of the year and recent volatile crude palm oil (CPO) prices, the value of both stocks continue to be hinged on their plantation segments.
“CPO price remains as a key catalyst, while a key risk is a further decline in prices, which are currently at the RM2,300+ and RM2,400+ levels,” it said.
AmInvestment said however, both Jaya Tiasa and Ta Ann will continue to benefit for their timber segment from the weak ringgit at above the RM4 to the US dollar.
It added log export prices were sustained at US$220 a cubic metre though plywood prices remain weak at below US$480 a cubic metre. A positive is the removal of the overhang on the future of their timber concessions. Sarawak Chief Minister Tan Sri Adenan Satem has said he is not looking at breaking up the concessions to the big six timber groups.
The research house explained its Buy for Jaya Tiasa was an unchanged fair value of RM2.18 a share based on an FY16F PE of 25 times. At 25 times, this was three notches below its10-year forward price-to-earnings (P/E) of 28 times.
For Ta Ann, it maintained a Buy, with a tweaked fair value of RM3.88 a share (versus RM3.99 a share ex-bonus previously), based on a PE of 12 times (versus 10 times previously) on a cut FY16F EPS.
“At the current level, the market appears to be treating the timber division to be at depressed valuations, though this could be attributed due to continuing uncertainties at its Tasmania operations.
“Current catalysts include any weakening of the ringgit, and upward trending CPO and timber prices. The risks include a strengthening domestic currency, further pullbacks in CPO prices, and lower-than-expected fresh fruit bunches and CPO production.
“Given the lack of capex requirements for further planting, we now estimate a 16 sen a share dividend (ex-bonus) for FY16F-FY17F for a payout ratio of 45%-58% versus FY15's 39% and FY14's 60%. This translates into a yield a 5% for FY16F,” said AmInvestment.
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