Jaya Tiasa’s 9MFY19 core net loss of RM172.4m (vs. 9MFY18 core net loss of RM21.1m) came in below our expectation. The variance was mainly due to weaker-than-expected contribution from the palm oil and timber divisions. As such, we now project FY19-20 core net losses of RM195.1m and RM4m, respectively, and cut our FY21 core EPS forecast by 41%, mainly to account for higher operating costs and a lower CPO price assumption. Based on our revised earnings forecast and after rolling forward our valuation horizon to CY20E, we revise our SOTP-derived target price to RM0.40. Given the 22% downside to our new TP, we downgrade Jaya Tiasa to SELL (from HOLD previously).

9MFY19 Core Net Loss of RM172.4m, Worse Than Expected

Jaya Tiasa reported 9MFY19 revenue of RM503.6m, down 23.7% yoy, mainly attributable to the lower contribution from both the timber (-37.2% yoy) and palm oil (-16.5% 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 weaker CPO and PK prices. Jaya Tiasa posted a LBT of RM171.3m in 9MFY19 vs. a LBT of RM32.4m in 9MFY18, as both timber and palm oil divisions are loss-making. After excluding one-off items, Jaya Tiasa posted a core net loss of RM172.4m in 9MFY19 as compared to a core net loss of RM21.1m in 9MFY18. This was below our expectation, mainly due to weaker-than-expected contribution from both the palm oil and timber divisions.

Losses Widened Further in 3QFY19

Jaya Tiasa’s revenue in 3QFY19 declined by 34.6% qoq to RM115.7m, attributable to lower contribution from both the timber and palm oil divisions due to a decrease in the sales volumes of FFB, CPO and logs. This was partially offset by a slight increase in the CPO price to RM1,885/MT in 3QFY19, up 2.8% qoq. Jaya Tiasa reported a wider core net loss of RM124.6m in 3FY19 vs. a core net loss of RM47.3m in 2QFY19.

Source: Affin Hwang Research - 24 May 2019