MARKET DEVELOPMENT
Dry Weather Could Affect Jaya Tiasa’s 2H14 Production
Dry Weather Could Affect Jaya Tiasa’s 2H14 Production
09/08/2014 (Borneo Post) - Jaya Tiasa Holdings Bhd’s (Jaya Tiasa) log production for the first half of 2014 (1H14) declined by 5.9 per cent year on year (y-o-y) to 482,064 metric tonnes, a possible signal of dry weathers affecting productivity this year.
Affin Investment Bank Bhd’s research arm (Affin Research) yesterday observed the group’s average monthly log production year to date (YTD) was lower at 80,344 metric tonnes compared to 85,382 metric tonnes in 1H13.
According to KKB’s management, the decline in log production was partly due to weather conditions that slowed down the process of harvesting logs.
“For 2Q14, log production actually improved by 4.6 per cent y-o-y to 277,483 metric tonnes after declining by 17.1 per cent y-o-y in 1Q14, mainly due to the monsoon season at the beginning of the year.
“Based on current log production and the average selling price, we estimate that the timber division will generate revenue of about RM200 million in 4Q FY14, largely in line with our expectations,” said Affin Research.
“Going forward, if the dry weather spell continues in Sarawak and the river water level declines, log transportation will likely be hampered. Logs would have to be transported to the mill using land transportation, thus increasing log production cost.”
To note, the cost of log production for Jaya Tiasa is roughly US$120 to US$130 per metric tonne.
Given the limited log supply due to diminishing natural forest resources coupled with India’s aggressive purchase after Myanmar banned its log exports starting April 1 this year, the research house believes the average selling price for export round logs will remain firm at US$250 to US$260 per metric tonne.
“In tandem with the weak log production, we expect less robust log production for FY15-16. We cut our FY15-16E core earnings per share (EPS) by 16 to 25 per cent after imputing a lower log production assumption, and a lower assumption of Jaya Tiasa’s average selling price of logs to US$220 per metric tonne for FY15-16 from US$230 per metric tonne.
“While the timber division’s earnings contribution remains fairly volatile, we take comfort that Jaya Tiasa’s palm oil plantation contribution will continue to expand, driven by rising matured palm oil plantation; and higher fresh fruit bunch production.”
As at March 2014, Jaya Tiasa’s total plantable area of 69,873 hectares was 93 per cent planted and the group is expected to fully plant its palm oil plantation by end-2015.
After earnings reductions, stock looks overvalued and the research house believe it has already priced in expected sharp earnings growth from the plantation division.
Thus, Affin Research pegged a target price of RM2.15, based on a 12 times 2015 estimates price earnings ratio for the timber division, a 14 times 2015 estimates price earnings ratio for the plantation division and book value for the forest plantation.
Affin Investment Bank Bhd’s research arm (Affin Research) yesterday observed the group’s average monthly log production year to date (YTD) was lower at 80,344 metric tonnes compared to 85,382 metric tonnes in 1H13.
According to KKB’s management, the decline in log production was partly due to weather conditions that slowed down the process of harvesting logs.
“For 2Q14, log production actually improved by 4.6 per cent y-o-y to 277,483 metric tonnes after declining by 17.1 per cent y-o-y in 1Q14, mainly due to the monsoon season at the beginning of the year.
“Based on current log production and the average selling price, we estimate that the timber division will generate revenue of about RM200 million in 4Q FY14, largely in line with our expectations,” said Affin Research.
“Going forward, if the dry weather spell continues in Sarawak and the river water level declines, log transportation will likely be hampered. Logs would have to be transported to the mill using land transportation, thus increasing log production cost.”
To note, the cost of log production for Jaya Tiasa is roughly US$120 to US$130 per metric tonne.
Given the limited log supply due to diminishing natural forest resources coupled with India’s aggressive purchase after Myanmar banned its log exports starting April 1 this year, the research house believes the average selling price for export round logs will remain firm at US$250 to US$260 per metric tonne.
“In tandem with the weak log production, we expect less robust log production for FY15-16. We cut our FY15-16E core earnings per share (EPS) by 16 to 25 per cent after imputing a lower log production assumption, and a lower assumption of Jaya Tiasa’s average selling price of logs to US$220 per metric tonne for FY15-16 from US$230 per metric tonne.
“While the timber division’s earnings contribution remains fairly volatile, we take comfort that Jaya Tiasa’s palm oil plantation contribution will continue to expand, driven by rising matured palm oil plantation; and higher fresh fruit bunch production.”
As at March 2014, Jaya Tiasa’s total plantable area of 69,873 hectares was 93 per cent planted and the group is expected to fully plant its palm oil plantation by end-2015.
After earnings reductions, stock looks overvalued and the research house believe it has already priced in expected sharp earnings growth from the plantation division.
Thus, Affin Research pegged a target price of RM2.15, based on a 12 times 2015 estimates price earnings ratio for the timber division, a 14 times 2015 estimates price earnings ratio for the plantation division and book value for the forest plantation.