by Siow Chen Ming

The Edge

14 September, 2010

KUALA LUMPUR: Jaya Tiasa Holdings Bhd, which is historically known as a timber outfit, will see its earnings mix changed significantly over the next few years riding on a fast growing contribution from its plantation division as more and more of its oil palms reach maturity.

This may positively dilute the group’s image as a timber-outfit, which is susceptible to the volatility in timber trades, and offer investors a new growth proposition.

There has been a strong growth in its plantation division over the last few years.

From 31,864 tonnes in the financial year ended April 30, 2007, (FY07), the group’s fresh fruit bunches (FFB) production rose to 61,048 tonnes in FY08, 99,191 tonnes in FY09 and to 180,684 tonnes in FY10.

Going forward, some analysts have projected Jaya Tiasa’s FFB production to further double to about 370,000 tonnes in FY11, 600,000 tonnes in FY12, and 850,000 tonnes in FY13, based on guidance from management and the rate that the group’s plantation is entering maturity.

With FFB production of 180,684 tonnes in FY10, Jaya Tiasa recorded a revenue of RM86.54 million and a segment profit of RM18.97 million from its plantation division. What would the revenue and profit be with 850,000 tonnes of FFB production?

Assuming crude palm oil (CPO) prices at RM2,500 per tonne, and an CPO extraction rate of about 20% per tonne of FFB (industry average), 850,000 tonnes of FFB could translate into a revenue of RM425 million, and a segment profit of RM204 million, based on a cost structure of not more than RM1,300 per tonne of CPO and a margin of RM1,200 per tonne.

In comparison, IJM Plantations Bhd, which produced 604,663 tonnes of FFB in its year ended March 31, 2010 (FY10), recorded a revenue of RM406.75 million and a segment profit of RM122.15 million during the year.

An annual FFB production rate of 850,000 tonnes would lend big a boost to Jaya Tiasa considering that the group’s FY10 group revenue was RM746 million while gross and net profit stood at RM119.9 million and RM25.08 million, respectively.

Note that its timber division still contributed to the bulk of the group’s FY10 turnover and earnings, with revenue of RM666.31 million and segment profit of RM27.82 million. But as the group increased its FFB production, contribution from timber division may soon take a backseat.

The main reason for Jaya Tiasa’s strong FFB production growth in the next few years is that more of its plantations are entering maturity.

As at July 31, 2010, Jaya Tiasa has total plantable land bank of 69,055ha in Sarawak, which is similar to the land bank size of mid-size planter Genting Plantations Bhd in Malaysia alone (excluding its land bank in Indonesia which is only beginning to mature).

Out of Jaya Tiasa’s 69,055ha, 52,877ha is planted, of which 25,058ha are matured. A year ago, only 14,772ha were matured.

Jaya Tiasa first ventured into the oil palm plantation business in 2002, with a 15,600ha land bank. It entered into more acquisitions in the subsequent years leading to a gross land bank of 83,480ha (plantable 69,055ha) as at FY05. The group has not added any new land bank since then.

“Management is not looking at adding new plantation land bank for now. What the group now has in terms of land bank is enough to drive growth for the next five years,” said an analyst.

If fully planted and matured, Jaya Tiasa’s 69,055ha land bank could produce a sizeable profit and make it a medium-sized planter. Note that Genting Plantations’ 60,000ha of planted land bank in Malaysia, which is all matured, produced 1.16 million tonnes of FFB in its financial year ended Dec 31, 2009 (FY09), which translate into revenue of RM675.38 million and a segment profit of RM291 million.

Jaya Tiasa’s share price has gained some 36% year-to-date. The stock closed one sen higher at RM3.55 yesterday, which gave the company a market value of RM1 billion. The company’s net assets per share stood at RM4.12 as at April 30.

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