JTIASA (4383) : Jaya Tiasa Holdings - Lower log cost in 1Q explained
Target RM1.95 (Stock Rating: HOLD)
Our checks with Jaya Tiasa revealed that the group’s log production cost fell in 1QFY6/15, mainly due to lower transportation cost. Its log production cost may remain low in 2QFY15 but is expected to rise in 2015, when its harvesting area shifts to the more remote parts of its concessions. This is in line with our projection that its average log production cost in FY15 will be higher than in 1QFY15. We make no changes to our FY15-17 EPS and Hold recommendation. However, our target price falls to RM1.95, as we apply a 10% discount to our SOP valuation for the worsening CPO price sentiment due to the sharp fall in crude oil price. Switch to First Resources for exposure to plantations.
What Happened
Jaya Tiasa reported a surprising 78% yoy jump in logging pretax profit in 1QFY15. The logging division1QFY15 pretax margin expanded 14% pts yoy, although the average selling price (ASP) for logs only rose 6% yoy. We gather that Jaya Tiasa’s log production cost in 1QFY15 was lower yoy as the harvested area was closer to the point of export. The group typically transports its logs via road in Jun-Sep, although transport by road is more expensive than by river. The weather is usually dry in 1Q, making river transport unfeasible. Jaya Tiasa will shift its logging operations to more remote areas in 2Q. However, the rainy weather in 2QFY15 would make river transport feasible, keeping transportation cost low during the quarter.
What We Think
We expect Jaya Tiasa’s log production cost to increase in 2HFY15, when the weather turns drier and necessitates the use of road transportation. We cut our log production cost forecast for 1QFY15 but keep our projections for the rest of FY15 at FY14 levels. Nonetheless, the recent depreciation in the RM against the US$ is positive for Jaya Tiasa’s log earnings, as log prices are quoted in US$. If the current exchange rate persists, there is potential upside to our FY15 EPS forecast. We assumed RM/US$ rate of RM3.30 in FY15. Every 1% decline in the RM/US$ rate would raise our FY15 EPS estimate by 7%.
What You Should Do
The prospects of better log earnings in FY15 may not be sufficient to offset the impact of negative CPO price sentiment on Jaya Tiasa’s share price. The sharp drop in crude oil price in the past few weeks has reduced biodiesel’s attractiveness relative to conventional diesel. This may hurt the demand for CPO as biodiesel feedstock and drag CPO price further. As such, we believe our 10% discount to Jaya Tiasa’s SOP is warranted. We maintain our Hold recommendation on the stock.
Source: CIMB Daybreak - 04 December 2014
Target RM1.95 (Stock Rating: HOLD)
Our checks with Jaya Tiasa revealed that the group’s log production cost fell in 1QFY6/15, mainly due to lower transportation cost. Its log production cost may remain low in 2QFY15 but is expected to rise in 2015, when its harvesting area shifts to the more remote parts of its concessions. This is in line with our projection that its average log production cost in FY15 will be higher than in 1QFY15. We make no changes to our FY15-17 EPS and Hold recommendation. However, our target price falls to RM1.95, as we apply a 10% discount to our SOP valuation for the worsening CPO price sentiment due to the sharp fall in crude oil price. Switch to First Resources for exposure to plantations.
What Happened
Jaya Tiasa reported a surprising 78% yoy jump in logging pretax profit in 1QFY15. The logging division1QFY15 pretax margin expanded 14% pts yoy, although the average selling price (ASP) for logs only rose 6% yoy. We gather that Jaya Tiasa’s log production cost in 1QFY15 was lower yoy as the harvested area was closer to the point of export. The group typically transports its logs via road in Jun-Sep, although transport by road is more expensive than by river. The weather is usually dry in 1Q, making river transport unfeasible. Jaya Tiasa will shift its logging operations to more remote areas in 2Q. However, the rainy weather in 2QFY15 would make river transport feasible, keeping transportation cost low during the quarter.
What We Think
We expect Jaya Tiasa’s log production cost to increase in 2HFY15, when the weather turns drier and necessitates the use of road transportation. We cut our log production cost forecast for 1QFY15 but keep our projections for the rest of FY15 at FY14 levels. Nonetheless, the recent depreciation in the RM against the US$ is positive for Jaya Tiasa’s log earnings, as log prices are quoted in US$. If the current exchange rate persists, there is potential upside to our FY15 EPS forecast. We assumed RM/US$ rate of RM3.30 in FY15. Every 1% decline in the RM/US$ rate would raise our FY15 EPS estimate by 7%.
What You Should Do
The prospects of better log earnings in FY15 may not be sufficient to offset the impact of negative CPO price sentiment on Jaya Tiasa’s share price. The sharp drop in crude oil price in the past few weeks has reduced biodiesel’s attractiveness relative to conventional diesel. This may hurt the demand for CPO as biodiesel feedstock and drag CPO price further. As such, we believe our 10% discount to Jaya Tiasa’s SOP is warranted. We maintain our Hold recommendation on the stock.
Source: CIMB Daybreak - 04 December 2014
