Another year of weak log production seen for Jaya Tiasa

Petaling Jaya: Malaysia’s leading integrated timber producer, Jaya Tiasa Holdings Bhd, is facing another year of weak log production after the Sarawak Forestry Department tightened regulations by limiting harvesting.

This was done by only allowing two coupes to run concurrently every year per licensed area.

The Sarawak-based Jaya Tiasa has historically been running up to four coupes simultaneously in a year per licensed area.

“With Jaya Tiasa’s log production already down 38% year-on-year in six months of FY17 and after inputting the regulatory changes, we have therefore cut log production estimates by 14%-19% in FY17 – FY18 moving forward,” research house, RHB stated yesterday.

Furthermore, plywood prices expected to decrease by 10% from US$536/cubic meter in FY16 to US$480/cubic meter in FY17.

However, it added that given the weak outlook of the ringgit and the group’s sensitivity to the volatile foreign exchange market where every RM0.10/US dollar change would impact revenue by 10-12%. Jaya Tiasa is expected to ride through the production and price cuts as the bulk of timber producer’s earnings is denominated in US dollar while the majority of its costs are in ringgit.

Also, Jaya Tiasa’s plantation sector remains bright as fresh fruit bunch (FFB) production is expected to increase by 19% from 931000 tonnes in FY16 to 1106 tonnes in FY17 as more plantation estates mature and as the average selling price of crude palm oil (CPO) is expected to rise by 11% from RM2246/tonne in FY16 to RM2500/tonne in FY17.

“We expect Jaya Tiasa’s earnings growth to continue to be underpinned by its palm oil division coming from higher output and lower costs.

“We expect the increasing maturity of its estates to lead to higher FFB growth for the group. Over 65% of its 70,000 ha of planted area would be in prime mature age by June of FY17. Our CPO price assumption of RM2500 for FY17-18 is unchanged,” RHB Research said. With Jaya Tiasa’s expected increase in earnings by 4-5% in FY17 due its strengthening plantation division and the weakening ringgit, the research firm has placed the timber producer’s real net asset value (RNAV) at RM1.63bil with RM632mil coming from its log division, RM210mil from its plywood division and RM788mil from its plantation division and with 968 million outstanding shares and has a target price of RM1.68 for the stock.

“Jaya Tiasa is currently trading at 12x FY17F price to earnings versus its peers Ta Ann Holdings Bhd and WTK Holdings Bhd which are trading at 13x and 15x respectively.”

Shares of Jaya Tiasa closed 5 sen lower at RM1.35 yesterday.