Jaya Tiasa’s FY17 core net profit of RM87.2m (+22.2% yoy) came in below expectations. The variance was mainly due to lower-thanexpected contribution from the plywood division. We have cut our FY18-19 EPS forecasts by 29-33%, mainly to take into account the recent cut in export quota, lower log production and higher cost of production assumptions for the timber division. We are also introducing our FY20 forecasts. After rolling forward our valuation horizon to 2018E, our SOTP-derived TP for Jaya Tiasa is lowered to RM1.23 due to our earnings cuts. Downgrade to HOLD.

FY17 Results Below Expectations

Jaya Tiasa’s FY17 revenue declined by 4.5% yoy to RM977.1m. This was mainly due to: 1) a reduction in log and plywood sales volumes by 9% and 27% yoy, respectively, because of lower production volumes; and 2) a 13% and 7% yoy decline in log and plywood ASPs, but partially offset by higher CPO and PK sales of 24% and 40% yoy, respectively. PBT dropped by 41.1% yoy to RM48.4m, partly attributable to an impairment loss of about RM62.3m on goodwill. FY17 core net profit, after adjusting for one-off items, increased by 22.2% yoy to RM87.2m. This was below both our and consensus expectations, accounting for 87% and 90% of our FY17 estimate and the street’s respectively. The variance was mainly due to lower-than-expected contribution from the plywood division. Jaya Tiasa also declared a lower DPS of 0.5 sen vs. 1.3 sen in FY16, below our expectations.

4QFY17 Core Net Profit Declined by 59.7% Qoq to RM12.5m

On a sequential basis, Jaya Tiasa’s 4QFY17 revenue declined by 12.2% qoq to RM235.8m. The logs and wood processing divisions recorded lower revenue of 41.4% and 15.4% qoq, respectively, to RM45.1m and RM51.6m, while the palm oil division’s revenue increased by 6.6% qoq to RM139m. EBITDA margin weakened to 27.0% vs. 30.9% in 3QFY17, mainly due to the loss-making plywood division. After excluding one-off items, Jaya Tiasa’s core net profit was lower by 59.7% qoq to RM12.5m.

Lower Log Production and Export Quota, Higher Costs of Production

Given the challenges in the timber industry, we have cut our FY18-19 EPS forecasts by 29-33%, mainly to take into account the recent cut in export quota to 20% (from 30% previously), lower log production and higher cost of production for the log and plywood divisions. Nevertheless, we believe that the potential earnings increase in the plantation division would be able to partially mitigate the drop in timber division earnings.

Source: Affin Hwang Research - 25 Aug 2017