Good Quarter, Within Expectations

Jaya Tiasa’s 9MFY17 core net profit of RM74.7m (+40.9% yoy) was within expectations. We maintain our FY17 EPS forecast but cut our FY18-19 EPS forecasts by 12-13%, mainly to take into account a lower log production assumption and recent hike in the hill timber premium. As such, we lower our SOTP-derived TP to RM1.34. Maintain our BUY rating on Jaya Tiasa.

9MFY17 Results Within Expectations

Jaya Tiasa’s 9MFY17 revenue declined by 4.6% yoy to RM741.4m. This was mainly due to: 1) reductions in log and plywood sales volume by 16% and 30% yoy, respectively, because of lower production volume; and 2) an 11% decline in log and plywood ASPs. However, PBT increased by 53.1% yoy to RM92.3m, attributable to higher FFB and CPO ASPs by 40% and 30% yoy, respectively, as well as a lower cost of production due to a 12% increase in FFB production. The 9MFY17 core net profit, after adjusting for one-off items, increased by 40.9% yoy to RM74.7m. This was within our and consensus expectations, accounting for 74.5% and 77% of our and the street’s FY17 estimates, respectively.

3QFY17 Core Net Profit Increases by 83% Qoq to RM31.1m

On a sequential basis, Jaya Tiasa’s 3QFY17 revenue increased by 18.5% qoq to RM268.5m. The logs, wood processing and palm oil divisions recorded higher revenue by 49.6%, 28.7% and 2.1% qoq, respectively, to RM76.9m, RM61.0m and RM130.4m. The EBITDA margin improved to 30.9% vs. 27.9% in 2QFY17, mainly due higher production and ASPs for FFB and CPO. Jaya Tiasa reported higher core net profit of RM31.1m in 3QFY17, up by 83.3% qoq.

Increase in Production Cost of Logs

The increase in the hill timber premium to RM50/m3 (previously RM0.80/m3), expected to commence on 1 July 2017, is likely to negatively affect Jaya Tiasa’s earnings. We estimate the log cost of production will increase by about 10%. Roughly 80% of Jaya Tiasa’s log production is from hills. We maintain our FY17 EPS forecast but cut our FY18-19 EPS forecasts by 12-13% to account for our lower log production assumption and higher log cost of production.

Source: Affin Hwang Research - 26 May 2017