This article first appeared in The Edge Financial Daily, on January 15, 2016. 
  
Jaya Tiasa Holdings Bhd ( Valuation: 1.40, Fundamental: 0.30)
(Jan 14, RM1.62)
Maintain buy with a higher fair value (FV) of RM2.18: We maintain “buy” on Jaya Tiasa, with a higher FV of RM2.18 per share, based on an unchanged financial year ending June 30, 2016 (FY16F) (forecast) price-earnings ratio (PER) of 25 times, but with a higher earnings per share (EPS) of 8.7 sen. This is three notches below its 10-year forward PER of 28 times.  
We have raised our FY16F earnings by about 11%, mainly to account for a higher crude palm oil price assumption at RM2,250 per tonne versus RM2,150 per tonne previously. We have also tweaked FY17F earnings downwards by 8% due to a revision in the foreign exchange rate from RM4 to RM3.85 to the US dollar.  
At current prices, Jaya Tiasa’s implied enterprise value (EV)/planted hectarage is at RM20,000 versus Ta Ann Holdings Bhd ( Valuation: 2.00, Fundamental: 2.30)’s RM26,000 — a discount of 21%. At our target prices, Jaya Tiasa’s implied EV/planted hectarage is at RM27,000 versus Ta Ann’s RM32,000 — a discount of 15%.  
Both compare favourably to the current implied EV/planted hectarage range of RM50,000 to RM80,000 for mid-cap plantation companies. The big caps’ implied EV/planted hectarage is well over RM100,000. The market EV/hectarage for brownfield land bank in Sabah and Sarawak is reportedly between RM62,000 and RM68,000.  
Jaya Tiasa’s fresh fruit bunch (FFB) yield is on a recovery path after achieving only 12.5 tonnes per mature hectare for FY15, due to a labour shortage that led to the neglect of about 10,000ha of planted areas.  
It is on track to meeting our FFB production projection of 900,000 tonnes for FY16F (+22% year-on-year [y-o-y] at 14.7 tonnes yield). For FY17F, we are projecting a 19% y-o-y growth to over one million tonnes (at 16.6 tonnes yield) and 12% increase in FY18F.  
Recall that Jaya Tiasa recently announced that it will discontinue planting on its remaining plantation land bank of 0.4% or about 280ha of its estimated plantable area of 69,873ha, after December 2015.  
This means the end of the group’s palm oil capital expenditure cycle, which will be positive for cash flows. Apart from its previously neglected areas, the productive areas are sizeable at  about 60,000ha. Notwithstanding the stock having risen 40% since our upgrade on Nov 27, 2015, we reiterate that it continues to be a cheap entry into the palm oil sector. It is an FFB recovery play, aided by the weak ringgit and strong log export prices. — AmInvestment Bank, Jan 14