Saturday, July 6, 2013

Koon Yew Yin On Jaya Tiasa

Dear XXXXX (a senior analyst),

I attached herewith JayaTiasa Chairman's opening statement for its annual report for year ending June 2012. The following are my comment:

1. It has one of the largest, if not the largest plywood and logging business in Malaysia

2. The started planting oil palms in 2002 aggressively and the report showed that it had planted nearly 60,000 ha. Looking at the age profile and FFB/ha production at various palm ages, this company has sustainable profit growth for the next 10 or more years. 

3. Just before the bonus issue of 2 for everyone held, the share price was nearly Rm 10 and the company placed out 15% of the total issued shares at Rm 7.90. After the bonus issue, the financial institution would have paid Rm 2.63 per share and it closed at Rm 2.09 yesterday. 

4. Reforestation or replanting trees is viable long term business. Please see the 2 attachments. The company must have spent quite a large amount for planting trees. As a result the NTA is more than RM 4.00 per share. 

I wrote to the company secretary to enquire why the Chairman said that the trees will take 12-15 years to grow while according these attached reports the trees can be harvested in about 7 years. She replied that they need the trees to have a minimum of 35 cm diameter for the production of veneer. For chip boards manufacture the trees can be any size. 

5. I like the way they keeping planting oil palms aggressively. They planted about 60,000 ha in 10 years. I expect to see more planted area in its annual report for year ending June 2013. 

I have been buying this share for the last few months and there were lots of sellers because the company is currently showing poor profit. I think I have mopped up all the tired holders' shares. I am beginning to find less sellers. My family members and I have accumulated more than 23 million shares. 

I have not seen any analyst report on Jaya Tiasa? Why are you not interested in this share with sustainable profit growth in the next 10 years? 

I consider this is the most undervalued plantation share in the market. Fortunately or unfortunately it is not listed under plantation and that is why it is not so obvious and glaring at investors. 

Best wishes
Yew Yin          
Just Out - report On JT by CIMB
Jaya Tiasa Holdings   | PDF
Beneficiary of higher log prices
JT MK / JTIA.KL TRADING BUY - Maintained RM2.00 - Tgt. RM2.36
Mkt.Cap: US$608.00m | Avg.Daily VolUS$0.52m | Free Float38.50%
Plantations | Author(s): Xiao Jun SAW,

▊ Our more positive view on Jaya Tiasa's timber business was reinforced during a recent non-deal roadshow with the group. Management thinks that the higher log prices could last till March next year. This will lift timber earnings of the group in the coming quarters. We maintain our Trading Buy call on Jaya Tiasa. The stock is not an Outperform as we expect it to be re-rated only in the short term, driven mainly by stronger timber earnings in the next few quarters. Also unchanged are our earnings forecasts and our target price of RM2.36, which is based on sum-of-parts. Key re-rating catalysts include a potential positive earnings surprise relative to consensus.
What Happened
We took Jaya Tiasa's CEO and senior management team on a one-day NDR in Kuala Lumpur last week to meet with 11 institutional funds. During the meetings, management provided updates on its plantation and timber divisions. Most investors were keen to know whether the current strong log prices were sustainable as they were concerned that the recent decline in the rupee against the US$ may impact future timber demand from India. Management indicated that demand for Sarawak logs from India is fairly inelastic given the country’s preference for Sarawak logs, which are comprised mainly of the Meranti species. The group believes the current high log prices will be sustained until March next year as it expects log supply to remain tight given that the rainy season in Sarawak is due to start in September. The group also expects plywood prices to trend higher in 2H13, driven by improved housing activities in Japan and the impending imposition of anti-dumping duties on Chinese plywood that are made from hardwood by the US in Sep 13
What We Think
Management broadly concurs with our view that current log prices could stay high till the end of the year and that plywood prices could rise as a result of stronger housing activity in Japan. We expect Jaya Tiasa to report better timber earnings in its 4QFY13 this coming Aug due to higher selling prices for its logs. We also expect the higher plywood prices to further boost its timber profitability in FY14. 
What You Should Do
We believe there is upside to its current share price as the rising timber prices have not been fully appreciated by the market.