JTIasa broke above a cup-with-handle formation

Background

Jaya Tiasa Holdings Berhad ('JTiasa'), an investment holding company, engages in the extraction & sale of logs. It holds interests in 1.76 million acres of timber concessions in the state of Sarawak. It also manufactures & sells sawn timber, plywood, veneer, block board & laminated wood. In addition, it involves in the development of oil palm plantations & its related activities; develops & maintains planted forests plus; and undertakes forest plantation contracts.

Recent Financial results

It has just announced its results for 3Q2010 ended 31/1/2010. Its net profit increased by 323% q-o-q or almost 90-fold y-o-y to RM13.7 million, while its turnover increased by 16.2% q-o-q or 24.2% y-o-y to RM210 million. The q-o-q improvement was attributable to higher sales volume for logs & plywood as well as better margin for plywood, while the y-o-y improvement was due to the same reasons plus higher sales volume & better prices of FFB produced. These improvements had helped to push up JTiasa's top-line & bottom-line in the last 2 quarters (see Chart 1).


Table: JTiasa's last 8 quarterly results


Chart 1: JTiasa's last 14 quarterly results

Movement in Prices of Logs & Timber Products

We can see that the prices of logs & timber products have stabilized but have yet to recover.


Chart 2: Movement in the Prices of Logs & Timber Products (Source: ITTO)

Valuation

JTiasa (closed at RM3.28 yesterday) is now trading at a PER of 16 times (based on annualized EPS of 20.4 sen). At this multiple, JTiasa is fully valued unless there is further increase in the prices of logs & timber products (mainly, plywood) & FFB.

Technical Outlook

JTiasa has broken above its downtrend line in May last year. Since then, the stock has been tracing out a cup-with-handle formation. It has broken above the cup-with-handle continuation pattern at RM2.90 on Mar 4. See Chart 3.


Chart 2: JTiasa's daily chart as at Mar 23, 2010 (Source: Tradesignum)

From Chart 4, we can see that the 10-month SMA line has cut above the 20-month SMA line. The 10-month SMA line is poised to cut above the 30-month SMA line soon. The last time we saw a similar SMA crossover was in the second half of 2006 when the share rose from RM3.00 to RM6.00 over a period of 6 months. I think a similar upside move is only possible if the prices of logs & timber products rallied.


Chart 4: JTiasa's monthly chart as at Mar 1, 2010 (Source: Tradesignum)

Conclusion

Based on technical consideration, JTiasa could be a good stock for trading BUY. Due to the absence of a strong recovery in the prices of timber products & logs, JTiasa's financial performance would be lagging and unable to provide the boost in term of justifying the higher PER of the stock.