MARKET DEVELOPMENT
CIMB Research Negative on Jaya Tiasa’s Purchase of RSawit Stake
CIMB Research Negative on Jaya Tiasa’s Purchase of RSawit Stake
28/10/2015 (The Star) - CIMB Equities Research is negative on Jaya Tiasa’s purchase of 140 million shares, or a 9.87% stake, in its sister company, RimbunanSawit, for RM70mil cash, funded by borrowings.
It explained that its negative view on the acquisition was due to higher interest cost.
The shares in Rimbunan Sawit were acquired from vehicles that were ultimately controlled by the Tiong family, who is also the controlling shareholder of Jaya Tiasa.
“We believe the funds would be better spent on improving its plantation estates.
“We cut FY16-18 EPS by 1%-3% to reflect higher interest costs, but raise our sum-of-parts target price as we roll it forward. Maintain Hold. We prefer Genting Plantations,” it said.
To recap, Rimbunan Sawit is a palm oil company based in Sarawak. The 50 sen per share paid by Jaya Tiasa is a 4.8% discount to Rimbunan Sawit’s closing price on Monday and implies a price-to-book value of 0.8 times and an EV/ha of RM21,650.
Jaya Tiasa said that the acquisition is for investment purposes and will allow it to benefit from a potential appreciation in Rimbunan Sawit’s share price.
CIMB Research said Rimbunan Sawit owns 57,182ha of oil palm estates in Sarawak, out of which 68% (39,122ha) was matured as at Dec 2014. It also owns an 80 tonnes/hr palm oil mill.
Although the company appears to be one of the largest palm oil players in Sarawak, its estate productivity has been weak.
“We estimate that its FFB yields were only 11-14 tonnes/ha in the past four years. Over the same period, its FFB output grew at a CAGR of only 1%, despite the mature area growing at a CAGR of 6%.
“Rimbunan Sawit was also barely profitable. Its EPS was only 0.1 sen and 0.2 sen in 2013 and 2014, respectively. In 1H15, it made a loss per share of 1.1 sen.
“We believe that Jaya Tiasa would recognise its stakes in Rimbunan Sawit as an available-for-sale (AFS) asset. As such, the earnings and share price movement of Rimbunan Sawit should not affect Jaya Tiasa’s earnings. Any gain or loss in the share price will only be realised when the stakes are sold.
“Jaya Tiasa may benefit if Rimbunan Sawit’s share price recovers, but it will bear a higher interest expense in the near term. Even if its share price eventually recovers, a 20% gain represents only 1% of Jaya Tiasa’s market cap.
“We view this acquisition negatively and believe Jaya Tiasa should focus its resources on improving its estate productivity, which has disappointed the market’s expectation. We would turn more positive if it manages to raise its FFB yield and OER to the industry averages,” said CIMB Research.
It explained that its negative view on the acquisition was due to higher interest cost.
The shares in Rimbunan Sawit were acquired from vehicles that were ultimately controlled by the Tiong family, who is also the controlling shareholder of Jaya Tiasa.
“We believe the funds would be better spent on improving its plantation estates.
“We cut FY16-18 EPS by 1%-3% to reflect higher interest costs, but raise our sum-of-parts target price as we roll it forward. Maintain Hold. We prefer Genting Plantations,” it said.
To recap, Rimbunan Sawit is a palm oil company based in Sarawak. The 50 sen per share paid by Jaya Tiasa is a 4.8% discount to Rimbunan Sawit’s closing price on Monday and implies a price-to-book value of 0.8 times and an EV/ha of RM21,650.
Jaya Tiasa said that the acquisition is for investment purposes and will allow it to benefit from a potential appreciation in Rimbunan Sawit’s share price.
CIMB Research said Rimbunan Sawit owns 57,182ha of oil palm estates in Sarawak, out of which 68% (39,122ha) was matured as at Dec 2014. It also owns an 80 tonnes/hr palm oil mill.
Although the company appears to be one of the largest palm oil players in Sarawak, its estate productivity has been weak.
“We estimate that its FFB yields were only 11-14 tonnes/ha in the past four years. Over the same period, its FFB output grew at a CAGR of only 1%, despite the mature area growing at a CAGR of 6%.
“Rimbunan Sawit was also barely profitable. Its EPS was only 0.1 sen and 0.2 sen in 2013 and 2014, respectively. In 1H15, it made a loss per share of 1.1 sen.
“We believe that Jaya Tiasa would recognise its stakes in Rimbunan Sawit as an available-for-sale (AFS) asset. As such, the earnings and share price movement of Rimbunan Sawit should not affect Jaya Tiasa’s earnings. Any gain or loss in the share price will only be realised when the stakes are sold.
“Jaya Tiasa may benefit if Rimbunan Sawit’s share price recovers, but it will bear a higher interest expense in the near term. Even if its share price eventually recovers, a 20% gain represents only 1% of Jaya Tiasa’s market cap.
“We view this acquisition negatively and believe Jaya Tiasa should focus its resources on improving its estate productivity, which has disappointed the market’s expectation. We would turn more positive if it manages to raise its FFB yield and OER to the industry averages,” said CIMB Research.