Jaya Tiasa’s 1HFY19 core net loss of RM47.7m (vs. 1HFY18 core net profit of RM26.8m) came in below our expectation, due mainly to weaker-than-expected contribution from the palm oil and timber divisions. As such, we now project a FY19 core net loss of RM31.9m and we cut our FY20-21 core EPS forecasts by 12-26%. Despite this, we raise our SOTP-derived target price to RM0.62 as we roll forward our valuation to FY20E (from CY19E), but maintain our HOLD rating on the stock.

1HFY19 Core Net Loss of RM47.7m, Below Expectations

Jaya Tiasa reported a 1HFY19 revenue of RM387.9m, down 22.4% yoy, mainly attributable to lower contribution from both the timber (-35.7% yoy) and palm oil (-15.5% yoy) divisions. The lower revenue from the timber division was due to a decline in plywood and log sales volumes, while revenue contribution from the palm oil division was affected by the lower FFB sales volume and weaker CPO prices. Jaya Tiasa posted a LBT of RM76.1m in 1HFY19 vs. a PBT of RM29.3m in 1HFY18, as both the timber and palm oil divisions were loss-making. After excluding one-off items, Jaya Tiasa posted a core net loss of RM47.7m in 1HFY19 as compared to a core net profit of RM26.8m in 1HFY18. This was below our expectation, mainly due to weaker-than-expected contribution from both the palm oil and timber divisions.

Losses Widened in 2QFY19

Jaya Tiasa’s revenue declined by 16.2% qoq to RM176.9m, attributable to lower contribution from both the timber and palm oil divisions. Jaya Tiasa reported a wider core net loss of RM47.3m vs. a core net loss of RM0.5m in 1QFY19. The operating loss in 2QFY19 was attributable to the decline in sales volume and selling price of CPO as well as higher production costs due to the reduction in FFB and CPO production given the seasonal monsoon period.

Source: Affin Hwang Research - 28 Feb 2019