Jaya Tiasa’s 1QFY18 core net profit of RM31.6m (+18.6% yoy) came in above expectations due to a higher-than-expected contribution from the palm oil division. We are raising our FY18-20E EPS forecasts by 29-34% to take into account these strong 1QFY18 results. We are increasing our SOTP-derived TP for Jaya Tiasa to RM1.65 due to our earnings upgrade, and upgrading Jaya Tiasa to BUY from HOLD.

1QFY18 Revenue Up 3.8% Yoy

Jaya Tiasa reported 1QFY18 revenue of RM255.7m, up 3.8% yoy, mainly due to the higher contribution from the palm oil division, offsetting a decline in the timber division. The higher revenue from the palm oil division was underpinned by: 1) higher CPO and PK sales volumes by 26% and 31% yoy, respectively; 2) higher CPO ASP by 7% yoy; and 3) improvement in OER and mills capacity utilization.

Core Net Profit Rose 18.6% Yoy to RM31.6m, Above Expectations

1QFY18 pretax profit increased by 44% yoy to RM42.3m due to an increase in profit from the plantation and timber divisions, which reported a pretax profit of RM1.6m vs. a pretax loss of RM7.7m in 1QFY17. After excluding one-off items, Jaya Tiasa’s core net profit increased by 18.6% yoy to RM31.6m. This came in above our expectations, accounting for 44% and 41% of our previous and consensus 2017 forecasts, respectively. The variance was mainly due to the higher-than-expected contribution from the palm oil division.

TP Higher at RM1.65, Upgrading to BUY Rating

We are raising Jaya Tiasa’s core earnings forecast by 29-34% for FY18- 20E mainly to account for the higher earnings contribution from the palm oil plantation division. Our SOTP-derived TP is now higher at RM1.65 (from RM1.23 previously) due to our earnings upgrade. We value Jaya Tiasa based on 8x 2018E EPS for its timber division, 15x 2018E EPS for its plantation division, and 1x BV for its forest plantation. With 48.6% upside potential, we are upgrading Jaya Tiasa to BUY from HOLD. We are now more positive on the stock as we believe earnings will continue to grow in view of higher contributions from the plantation business, underpinned by increasing matured plantation areas and FFB and CPO production, which should offset the decline in the timber division’s earnings.

Source: Affin Hwang Research - 30 Nov 2017