Jaya Tiasa reported a core net loss of RM35.7m in 9MFY20, which was below our expectation due to higher-than-expected losses from the timber division and a higher effective tax rate. Given the weak results, we now forecast a larger loss of RM71.3m for FY20E and cut our FY21/22E core earnings forecasts by 57%/26.5%, after taking into lower margins at both its timber and plantation divisions. Post the revisions and rolling forward our valuation horizon to 2021E, our SOTP-derived TP is higher at RM0.57 (from RM0.32 previously). We maintain our HOLD rating on Jaya Tiasa.

9MFY20 Core Net Loss of RM35.7m, Below Expectations

Jaya Tiasa’s 9MFY20 revenue was at RM564m, up 12% yoy, mainly attributable to the higher contribution from its palm-oil (+13% yoy due to higher CPO selling prices) and timber divisions (+10% yoy due to higher sales volumes for log and plywood products). Jaya Tiasa posted a narrower LBT of RM22.2m in 9MFY20 vs. a LBT of RM171.3m in 9MFY19. The palm-oil division reported stronger profit (>100% yoy), attributable to higher FFB and CPO sales volumes combined with lower production cost as a result of higher production. Meanwhile, losses from the timber division widened by -78% yoy due to diminishing margin from weaker timber-product selling prices. After excluding one-off items, Jaya Tiasa posted a core net loss of RM35.7m in 9MFY20 as compared to a core net loss of RM183.4m in 9MFY19. This was below our expectation, mainly due to higher-than-expected losses from the timber division and a higher effective tax rate.

Sequentially Weaker Due to Lower Production

Jaya Tiasa’s revenue in 3QFY20 declined by 22.6% qoq to RM144.6m, attributable to lower revenue contributions from its timber and palm-oil divisions. Also, Jaya Tiasa reported a larger core net loss of RM44.6m vs. a core net loss of RM8m in 2QFY20 due to losses at both divisions.

Maintain HOLD Rating for Jaya Tiasa

Given the weak results, we now forecast a larger loss of RM71.3m for FY20E (from RM7.7m previously) and cut our FY21/22E core earnings forecasts by 57%/26.5%, after taking into lower margins at both its timber and plantation divisions. After the revisions and rolling forward our valuation horizon to 2021E, our SOTP-derived TP is higher at RM0.57 (from RM0.32 previously). This is based on 20x 2021E PER for the plantation division and 1x PBR for the forest plantation. Maintain our HOLD rating on Jaya Tiasa.

Source: Affin Hwang Research - 28 May 2020