Jaya Tiasa’s 9MFY18 core net profit of RM7.4m (-90% yoy) came in below our expectation. The variance was mainly due to weaker-thanexpected contributions from the timber and plantation divisions. We have cut our FY18-20E earnings forecasts by 35-72% to account for the weaker-than-expected 9MFY18 results. We lower our SOTP-derived TP for Jaya Tiasa to RM0.83 and downgrade to HOLD from BUY.

9MFY18 Core Net Profit at RM7.4m, Below Expectations

Jaya Tiasa reported 9MFY18 revenue of RM660m, down 11% yoy, mainly attributable to the lower contribution from the timber division, offsetting an increase in the palm oil division. The lower revenue from the timber division was due to lower log production volume (-32.9% yoy to 229,994m3), while the higher revenue from the palm oil division was underpinned by higher CPO and PK production volume by 24.5% and 29.5% yoy, respectively. 9MFY18 PBT declined by 82.9% yoy to RM15.8m due to a decline in profit from the plantation division while the timber division was loss-making. After excluding one-off items, Jaya Tiasa’s core net profit plunged by 90.1% yoy to RM7.4m. This came in below our and street expectations, accounting for 8% of both our and consensus previous FY18E forecasts, respectively. The variance to our forecast was mainly due to higher-than-expected losses from the timber division and a lower-than-expected contribution from the plantation division

Downgrading to HOLD With TP of RM0.83

We have cut our FY18-20E core EPS estimates by 35-72% mainly to account for the weaker-than-expected 9MFY18 results. Due to our earnings cut, our SOTP-derived TP for Jaya Tiasa is now lower at RM0.83 (from RM1.65) based on an unchanged 8x 2019E PER for the timber division, a 10x (a 30% discount to mid-sized plantation companies average PER of 15x used previously) 2019E PER for the plantation division and an unchanged 1x PBR for the forest plantation. We downgrade Jaya Tiasa to a HOLD rating (from BUY previously) given the 7.8% upside to our new TP.

Key Risks

Key upside/downside risks include: 1) stronger/weaker economic growth leading to a higher/lower consumption of vegetable oils; 2) a sustained rebound/plunge in the CPO price; 3) higher/lower-than-expected FFB and CPO production; and 4) changes in government policies.

Source: Affin Hwang Research - 24 May 2018