Jaya Tiasa reported a core net profit of RM8.9m in 6MFY20, which was below our expectations due to higher-than-expected losses from the timber division and a higher effective tax rate. The higher profit from the palm-oil division was attributable to higher sales volumes and prices of FFB and CPO coupled with a lower production cost as a result of higher FFB production. But, this was offset by higher losses in the timber division due to a decline in timber product prices. As such, we have cut our FY20-22E core EPS by 8-59%, mainly to account for lower contribution from the timber division and a higher tax rate. Our SOTP-derived TP has also been lowered to RM1.20 from RM1.55 previously. We maintain our BUY rating as we remain optimistic on Jaya Tiasa’ palm-oil division driving future earnings on the back of higher production and CPO prices.

6MFY20 Core Net Profit of RM8.9m, Below Expectations

Jaya Tiasa’s 6MFY20 revenue was at RM419.4m, up 8.1% yoy, mainly attributable to the higher contribution from the palm-oil division (+11.2% yoy) that was partially offset by lower revenue from the timber division (-0.5% yoy). Jaya Tiasa posted a PBT of RM23.1m in 6MFY20 vs. a LBT of RM76.1m in 6MFY19. The higher profit from the palm-oil division was attributable to higher CPO prices, an increase in FFB and CPO production as well as a lower production cost as a result of higher production. The timber division was loss-making due to a decline in timber product prices. After excluding one-off items, Jaya Tiasa posted a core net profit of RM8.9m in 6MFY20 as compared to a core net loss of RM58.8m in 6MFY19. This was below our expectations, mainly due to higher-thanexpected losses 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).

Sequentially Weaker Due to Lower Production

Jaya Tiasa’s revenue in 2QFY20 declined by 19.6% qoq to RM186.9m, attributable to lower revenue contribution from both the timber and palm oil divisions. Jaya Tiasa reported a core net loss of RM8m vs. a core net profit of RM16.8m in 1QFY20. The weak 2QFY20 results were attributable to lower sales volumes of CPO and PK due to a reduction in FFB production by 36% qoq to 273.6k MT, and the loss-making timber division.

Source: Affin Hwang Research - 27 Feb 2020