MARKET DEVELOPMENT
Analysts Neutral on Timber Impact From Sarawak’s Palm Oil Development Plans
Analysts Neutral on Timber Impact From Sarawak’s Palm Oil Development Plans
04/03/2016 (Borneo Post) - Analysts are neutral on the impact from Sarawak speeding up the development of large tracts of native customary rights (NCR) land for oil palm following the state government’s decision to stop giving out land for plantation projects.
The state’s decision to stop private oil palm projects would mean that Sarawak is unlikely to achieve the target of raising its total oil palm plantation size to two million hectares (ha) by 2020.There are now over 1.3 million ha of oil palm estates, with more than 50 per cent on state land.
AmResearch Sdn Bhd (AmResearch) in a report remained neutral on this latest development as it does not have any near or medium term impact on the two timber-cumplantation players under its coverage which are Jaya Tiasa Holdings Bhd (Jaya Tiasa) and Ta Ann Holdings Bhd (Ta Ann).
“Both Jaya Tiasa and Ta Ann have developed most of the plantable areas and have abided by Wilmar’s strict planting policy,” it added in the report yesterday, noting that both groups currently supply their CPO production to Wilmar.
To note, Chief Minister Tan Sri Adenan Satem announced recently that no more state land would be given out for the planting of oil palm in the foreseeable future. According to him, the existing land under provisional leases and part of the 500,000ha of NCR land available are more than adequate to carry out large-scale planting.
Sarawak has some 1.5 million ha of NCR land, with the bulk of it remaining idle or underutilised. Most of the lands are without titles as these have yet to be surveyed, according to the report.
The development of NCR land would likely require federal government’s funding, such as the grants the federal authorities provides to Felcra and Felda in the Peninsula.
“The state will launch the maiden federal-funded scheme in Sibu division next month for a 400ha project to be developed by Felcra. Part of the profits will go to the NCR landowners.
“The authorities have identified circa 200,000ha of NCR land state-wide for large-scale oil palm projects. These would depend on the availability of federal funds. It would cost roughly RM16,000 per ha in development,” said the research house.
It is claimed that the state’s strategy introduced a decade ago of banding together NCR landowners and private entities under JVs have fallen short due to the large capital outlay for the private entities.
Some 79,000ha of NCR land in 48 projects have been planted with oil palm under the partnership concept. The private investors, who own 60 per cent stake in the JVs, have to come up with the capital required to fund the projects.
The state authorities disallow NCR land to be used as collateral to secure bank loans.
It was also reported that several JV agreements, including those involving listed plantation companies, had been cancelled. State-owned Land Custody Development Authority (LCDA) acts as managing agent to safeguard the landowners’ interests.
Overall, AmResearch maintained its buy call on Jaya Tiasa, with an unchanged fair value of RM2.18 per share, based on an FY16F price earnings of 25 times.
“This is three notches below its 10-year forward price earnings of 28 times,” it added. “We reiterate that it continues to be a cheap entry into the oil palm sector. It is a fresh fruit bunch recovery play.
“We expect Jaya Tiasa to achieve our estimate of 900,000 tonnes of fresh fruit bunches for FY16F.
“We maintain our hold call on Ta Ann, given the impending bonus issue and its potential for more dividend payouts in the absence of capex plans. We believe the current price level has priced in the downward trend in timber prices. The key catalyst continues to be CPO prices.”
The state’s decision to stop private oil palm projects would mean that Sarawak is unlikely to achieve the target of raising its total oil palm plantation size to two million hectares (ha) by 2020.There are now over 1.3 million ha of oil palm estates, with more than 50 per cent on state land.
AmResearch Sdn Bhd (AmResearch) in a report remained neutral on this latest development as it does not have any near or medium term impact on the two timber-cumplantation players under its coverage which are Jaya Tiasa Holdings Bhd (Jaya Tiasa) and Ta Ann Holdings Bhd (Ta Ann).
“Both Jaya Tiasa and Ta Ann have developed most of the plantable areas and have abided by Wilmar’s strict planting policy,” it added in the report yesterday, noting that both groups currently supply their CPO production to Wilmar.
To note, Chief Minister Tan Sri Adenan Satem announced recently that no more state land would be given out for the planting of oil palm in the foreseeable future. According to him, the existing land under provisional leases and part of the 500,000ha of NCR land available are more than adequate to carry out large-scale planting.
Sarawak has some 1.5 million ha of NCR land, with the bulk of it remaining idle or underutilised. Most of the lands are without titles as these have yet to be surveyed, according to the report.
The development of NCR land would likely require federal government’s funding, such as the grants the federal authorities provides to Felcra and Felda in the Peninsula.
“The state will launch the maiden federal-funded scheme in Sibu division next month for a 400ha project to be developed by Felcra. Part of the profits will go to the NCR landowners.
“The authorities have identified circa 200,000ha of NCR land state-wide for large-scale oil palm projects. These would depend on the availability of federal funds. It would cost roughly RM16,000 per ha in development,” said the research house.
It is claimed that the state’s strategy introduced a decade ago of banding together NCR landowners and private entities under JVs have fallen short due to the large capital outlay for the private entities.
Some 79,000ha of NCR land in 48 projects have been planted with oil palm under the partnership concept. The private investors, who own 60 per cent stake in the JVs, have to come up with the capital required to fund the projects.
The state authorities disallow NCR land to be used as collateral to secure bank loans.
It was also reported that several JV agreements, including those involving listed plantation companies, had been cancelled. State-owned Land Custody Development Authority (LCDA) acts as managing agent to safeguard the landowners’ interests.
Overall, AmResearch maintained its buy call on Jaya Tiasa, with an unchanged fair value of RM2.18 per share, based on an FY16F price earnings of 25 times.
“This is three notches below its 10-year forward price earnings of 28 times,” it added. “We reiterate that it continues to be a cheap entry into the oil palm sector. It is a fresh fruit bunch recovery play.
“We expect Jaya Tiasa to achieve our estimate of 900,000 tonnes of fresh fruit bunches for FY16F.
“We maintain our hold call on Ta Ann, given the impending bonus issue and its potential for more dividend payouts in the absence of capex plans. We believe the current price level has priced in the downward trend in timber prices. The key catalyst continues to be CPO prices.”