Jaya Tiasa’s 1HFY18 core net profit of RM45.2m (+3.6% yoy) came in within our expectation. The improvement in earnings was largely driven by the plantation division on higher CPO and PK production volumes, partially negated by a weaker timber contribution. We make no changes to our FY18-20 core EPS forecasts, and maintain our BUY rating with an unchanged TP of RM1.65.

1HFY18 Core Net Profit at RM45.2m, Within Expectation

Jaya Tiasa reported 1HFY18 revenue of RM499.8m, up 5.7% yoy, mainly attributable to the higher contribution from the palm oil division that offset a decline in contribution from the timber division. The higher revenue from the palm oil division was underpinned by: 1) higher CPO and PK production volumes, up by 42% and 55% yoy, respectively; and 2) improvement in OER and mill capacity utilization. 1HFY18 PBT increased by 22.8% yoy to RM64.2m due to an increase in profit from the plantation division. Excluding one-off items, Jaya Tiasa’s core net profit increased by 3.6% yoy to RM45.2m. This came in within our and street expectations, accounting for 48% and 47% of our respective FY18 forecasts.

Seasonally Weaker

Jaya Tiasa’s revenue declined by 4.6% qoq to RM244.1m, attributable to lower contribution from both the timber and palm oil divisions. The EBITDA margin weakened in 2QFY18 by 8.6ppt qoq to 26.3%, mainly due to the loss-making timber division and lower margins from the plantation division. The core net profit declined by 56.9% qoq to RM13.6m.

Maintain BUY Rating With TP Unchanged at RM1.65

We leave our FY18-20 earnings forecasts unchanged as the results were largely within our expectation. We reaffirm our BUY rating on Jaya Tiasa and SOTP-derived 12-month target price of RM1.65 based on an unchanged 8x 2018E PER for the timber division, 15x 2018E PER for the plantation division and 1x PBR for the forest plantation. We continue to like Jaya Tiasa as we believe earnings will continue to grow on the back of higher contribution from its plantation division, underpinned by increasing mature estates and improving FFB and CPO production.

Key Risks

Risks to our BUY rating would be: 1) weaker economic growth in key export markets; 2) major disruptions in log and palm oil harvesting due to extremely bad weather conditions; 3) changes in government policies; and 4) a sharp drop in ASPs for timber, FFB and CPO products.

Source: Affin Hwang Research - 1 Mar 2018