logger to planter part2

Upturn in sight?
Malaysian Business, Aug 1, 2007 by Johannes Ridu

WHEN Sandra Wong, the director of Jaya Tiasa Holdings Bhd, was asked why her company's share price was lagging far behind that of its peers like Ta Ann Holdings Bhd and WTK Holdings Bhd by some timber analysts and financial journalists recently, her reply was: `Jaya Tiasa is not the only timber company that has been undervalued by the market'.

She was right. Lingui Developments Bhd, one of the biggest timber companies around, is also suffering the same fate. Lingui's share price has been hovering around the RM3.00 region in the past few weeks. The listing of its parent company Samling Global in Hong Kong recently did not significantly impact the share price of Lingui on Bursa Malaysia.

Jaya Tiasa's story is quite similar. It is one of the biggest timber companies in Malaysia, with access to 710,000 hectares of timber concession in Sarawak and elsewhere. Like its peers (or rather rivals), it is a key beneficiary of rising log and plywood prices due to increasing global demand from countries such as India, China and the Middle East, and the lower supply situation worldwide due to a clampdown on illegal log exports in Indonesia and reduced exports from other hardwood producing countries.

But the stock was still trading at RM5.00 on a price earnings (PE) multiple of 10.1X on July 18. Its competitors Ta Ann Holdings and WTK Holdings, meanwhile, were trading at around RM10.60 on a PE multiple of 14.7X and RM8.55 on a PE multiple of 10.8X respectively. However, things seem to be looking up for the company. `Jaya Tiasa is moving up the value chain,' says timber analyst Steve Tan of RHB Research. He adds that hard timber prices are expected to stay firm due to higher demand.

Another possible reason is that Ta Ann exports about 80% of its timber to Japan whereas Jaya Tiasa's exports to Japan are only 20.5%. Last year, the company's exports to Japan were even lower - only about 14%. The company also exports logs, veneer, sawn timber and plywood to the United States (22.5%), the Middle East (15.7%), Korea (11.6%), Taiwan (10.4%), India (9.4%), China/Hong Kong (5.1%), Pakistan (0.2%), Asean (1.6%) and others (2.9%).

The product processing activities are carried out by its three wholly owned subsidiaries - Rimbunan Hijau Plywood Sdn Bhd, Jaya Tiasa Plywood Sdn Bhd and Jaya Tiasa Timber Products Sdn Bhd - using 25 production lines in Sibu, Kapit and Tanjung Manis in Sarawak.

But plans are already underway to push the company's share price up. Market talk has it that the company has plans to increase its exports to Japan to 40% during the financial year (FY) 2008 period - May 2007 to April 2008. Jaya Tiasa has both the JAS and CE certifications, which allow it to sell plywood to Japan and the European Economic Area respectively at premium prices.

Those who have invested in the company's shares are mostly long- term investors who believe in the company's fundamentals. `Our major shareholders want to stay with us for the long term,' says Wong. She adds that the long-term prospects for timber prices remain positive, as continued tight log supplies and firm demand from major importing countries drive timber prices higher.

In addition, Russia's decision to increase taxes on the export of softwood logs from July this year is expected to push up the price of hardwood timber. There is also a decrease in export tax rebate on China exports. Further, measures to clamp down illegal loggers in Malaysia and Indonesia are showing positive results.

Jaya Tiasa is also on track with plans to shift towards a higher- margin product mix. It has started to export higher-priced thin plywood and floor-base panels to Japan and other markets. It has also pledged to continue to work towards increasing the proportion of high- margin products from plywood sales.

Due to the cyclical nature of the timber sector, Jaya Tiasa has recently diversified into the oil palm plantation business to stabilise earnings in the future. As of May this year, the group had planted 23,141 hectares out of 83,000 hectares of land, mostly in Sarawak. About 4,195 hectares are expected to mature in FYE April 30, 2008. The remaining hectares would be developed over the next four years.

Currently, the company has 10 estates - Similajau Plantation, Hariyama Plantation, Wealth House Plantation, Lepah Plantation, Daro Plantation, Eastern Eden Plantation, Poh Zhen Plantation, Sawai Plantation, Lassa Plantation and Kabang Plantation. The company is also planning to set up four palm oil mills in the next four years. The first one, costing about RM35 million, will be operational by end- FY08.

The company, owned by Malaysia's top-10 billionaires Tan Sri Tiong Hiew King, estimates that the oil palm plantations would contribute a pre-tax profit of RM10 million for FY08, assuming crude palm oil prices are at RM1,800 to RM1,900 per tonne.

The company's board of directors have also recommended a first and final dividend of 3% less 27% tax f0r FYE April 30, 2007, which is subject to shareholders' approval. To further reward shareholders' loyalty and support, the board has also declared a share dividend distribution on the basis of one treasury share for every 20 existing ordinary shares held, on an entitlement date to be determined later.

RM127.1 million compared to the RM40.9 million in FY06. Earnings per share also surged to 49.52 sen compared to 15.86 sen in FY06.

The future looks rosy for Jaya Tiasa, which has a lot of room to expand its business operations. It is no wonder then that analysts like Tan are recommending a `buy' call on the stock.

FACT FILE

JAYA TIASA HOLDINGS BHD

PAID-UP CAPITAL:

RM282.53 million

BOARD OF DIRECTORS:

Gen (R) Tan Sri Abdul Rahman Abdul Hamid (independent non- executive chairman)

Tiong Chiong Hoo (managing director)

Dr Tiong Ik King (non-independent non-executive director)

Dr Wan Alshagaf Tuanku Esim (independent non-executive director)

John Leong Chung Loong (independent non-executive director)

Tiong Choon (non-independent non-executive director)

Tiong Chiong Hee (non-independent non-executive director)

Wong Lee Yun (independent non-executive director)

SUBSTANTIAL SHAREHOLDERS:

Tiong Toh Siong Holdings Sdn Bhd - 24.6%

Genine Chain Limited - 12.5%

Asanas Sdn Bhd - 10.4%

Amanas Sdn Bhd - 7.5%

HIGHEST-PAID DIRECTOR: RM700,000

LATEST FINANCIAL RESULTS: Net profit of RM127.1 million for FY07 ended April 30, 2007

Copyright 2007
Provided by ProQuest Information and Learning Company. All rights Reserved.

Bibliography for "Upturn in sight?"

View more issues: Jul 1, 2007, Jul 16, 2007, Aug 16, 2007

Johannes Ridu "Upturn in sight?". Malaysian Business. Aug 1, 2007. FindArticles.com. 05 Jun. 2008. http://findarticles.com/p/articles/mi_qn6207/is_20070801/ai_n24911430