We expect Jaya Tiasa’s earnings to rise going forward, driven by its palm-oil plantation division. This is largely underpinned by higher CPO production and prices as well as lower production costs. Also, we forecast the timber division to turn profitable in FY19E, mainly attributable to higher plywood prices. We make no changes to our FY19-21E core EPS forecasts for Jaya Tiasa. Our SOTP-derived TP for Jaya Tiasa is also unchanged at RM0.50 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. Maintain HOLD.

Plantation Earnings to Improve as Production and Prices Rise

We expect Jaya Tiasa’s earnings to be mainly derived from the palm-oil division. We forecast FY19-21E earnings for Jaya Tiasa’s palm-oil plantation division to be driven by rising CPO production (as more plantation areas reach prime age and higher OER), better prices and lower production costs. We expect CPO prices to increase in 1QCY19 as Malaysian palm-oil inventory declines given the seasonal production declines and higher world palm oil consumption. For Jaya Tiasa, we forecast CPO ASP to be RM2,230- 2,500/MT for FY19-21E after prices bottomed out at RM1,720/MT in Nov-18.

Expecting Timber Division to be Profitable Again

Meanwhile, we expect the timber division to turn profitable in FY19E from loss making in FY18, mainly due to an increase in timber product ASPs (especially plywood prices) but partially offset by the decline in timber products sales volume due to lower log production in FY19-21E. Similar to Ta Ann, Jaya Tiasa is also applying for Certificate for Forest Management Units (FMU), which allows the company to increase their log exports quota to 40% from 20%. Jaya Tiasa could potentially obtain the certificate by 2020.

Maintain HOLD Rating and TP of RM0.50

We make no major changes to our FY19-21E core EPS forecasts for Jaya Tiasa. Our SOTP-derived TP for Jaya Tiasa is also unchanged at RM0.50 based on 8x 2019E PER for the timber division, a 10x 2019E PER for the plantation division and 1x PBR for the forest plantation. We are maintaining our HOLD rating on Jaya Tiasa.

Source: Affin Hwang Research - 10 Jan 2019