Jaya Tiasa’s FY18 core net profit of RM3.8m (-95.6% yoy) came in below our expectation. The variance was mainly due to a weaker-thanexpected EBITDA margin and higher-than-expected depreciation. We have cut our FY19-20E earnings forecasts by 4-7% to account for the weaker-than-expected FY18 results. Our SOTP-derived TP for Jaya Tiasa is now lowered to RM0.67. Maintain HOLD.

Core Net Profit Declined by 95.6% Yoy to RM3.8m, Below Expectations

Jaya Tiasa reported FY18 revenue of RM841.7m, down 14.2% yoy, mainly attributable to the lower contribution from the timber division, offsetting a slight increase in the palm oil division. The lower revenue from the timber division was due to lower log production volume by 27% yoy to 302,015m3, while the higher revenue from the palm oil division was underpinned by higher FFB and CPO production volume by 6% and 17% yoy, respectively, to 1.07m MT and 174.5k MT but partially offset by lower CPO prices. Jaya Tiasa posted a LBT of RM20.1m in FY18 vs. a PBT of RM50m in FY19, due to a decline in profit from the plantation division while the timber and others divisions were loss-making. After excluding one-off items, Jaya Tiasa’s core net profit plunged by 95.6% yoy to RM3.8m. This came in below our and street expectations, accounting for 14% of our and 17% of consensus FY18 core EPS, respectively. The variance to our forecast was mainly due to a weaker-than-expected EBITDA margin and a higher-thanexpected depreciation rate.

TP Lowered to RM0.67; Maintain Our HOLD Rating

We have cut our FY19-20E core EPS estimates by 4-7% mainly to account for the weaker-than-expected FY18 results. We believe earnings will improve in FY19-21E underpinned by a better contribution from the plantation division given the expected increase in FFB and CPO production with lower production costs. Due to our earnings cut, our SOTP-derived TP for Jaya Tiasa is now lower at RM0.67 (from RM0.71) based on an unchanged 8x 2019E PER for the timber division, a 10x 2019E PER for the plantation division and an unchanged 1x PBR for the forest plantation division. Maintain HOLD rating for Jaya Tiasa.

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 - 30 Aug 2018