Jaya Tiasa’s FY19 core net loss of RM274.6m (vs. FY18 core net loss of RM78.8m) came in below our expectation. The variance was mainly due to weaker-than-expected contribution from the timber division and a higher effective tax rate. As such, we now project a wider FY20 core net loss of RM19.3m and we cut our FY21 core EPS forecast by 17.8%, mainly to account for lower CPO and plywood average selling price assumptions. Based on our revised earnings forecasts, we revise our SOTP-derived 12-month target price to RM0.37. We maintain our SELL call.

Worse-than-expected FY19 Core Net Loss of RM274.6m

Jaya Tiasa reported FY19 revenue of RM637.7m, down 24.2% yoy, mainly attributable to the lower contribution from both the timber (-17.4% yoy) and palm oil (-37.5% yoy) divisions. The lower revenue from the timber division was due to a drop in log and plywood sales volumes, while revenue contribution from the palm oil division was affected by weaker CPO and PK prices. Jaya Tiasa posted a loss before tax of RM198m in FY19 vs. a loss before tax of RM88.8m in FY18, as both the timber and palm oil divisions were loss-making. After excluding one-off items, Jaya Tiasa posted a core net loss of RM274.6m in FY19 compared to a core net loss of RM78.8m in FY18. Again, this was below our expectation, mainly due to weaker-thanexpected contribution from the timber division and a higher effective tax rate (due to de-recognition and reversal of deferred tax assets on unabsorbed tax losses in loss-making subsidiaries).

Another Loss-making Quarter, But Losses Have Narrowed Qoq

Jaya Tiasa’s revenue in 4QFY19 increased by 15.9% qoq to RM134.1m, attributable to higher revenue contribution from both the timber and palm oil divisions. Jaya Tiasa reported a narrower qoq core net loss of RM91.2m vs. a core net loss of RM124.6m in 3QFY19. The improvement was partly attributable to the lower production cost as a result of a higher FFB production volume and cost control measures.

Maintain SELL Rating With a New TP of RM0.37

Given the weak FY19 results, we now project a wider FY20 core net loss of RM19.3m and we cut our FY21 core EPS forecast by 17.8%, mainly to account for lower CPO and plywood average selling price assumptions. Based on our revised earnings forecasts and rolling forward the valuation horizon to FY21E, we revise our SOTP-derived TP to RM0.37 (from RM0.40), based on an unchanged 8x PER for the timber division, an unchanged 13x PER for the plantation division and an unchanged 1x P/BV for the forest plantation division. We maintain our SELL rating on the stock (downside of 19% to our new TP).

Key Risks

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

Source: Affin Hwang Research - 28 Aug 2019