• Jaya Tiasa’s FY20 core net profit of RM28.2m (FY19 core net loss: RM263.4m) came in above expectations due to better-than-expected contribution from its plantation and timber divisions coupled with a lower tax rate.
• We raise our FY21/22 core earnings forecasts by 27%/1.7%, to mainly take into account higher contribution from its plantation division.
• We also raise our SOTP-derived TP to RM1.10 (from RM1.00) and maintain our BUY rating on Jaya Tiasa.

FY20 Core Net Profit at RM28.2m – Above Expectations

Jaya Tiasa’s FY20 revenue was higher by 10.1% yoy at RM701.9m, mainly attributable to the higher contribution from palm-oil (+11.2% yoy due to higher CPO selling prices) and timber divisions (+7.2% yoy due to higher sales volume for log and plywood products). Jaya Tiasa posted a narrower LBT of RM132.1m in FY20 vs. a LBT of RM191m in FY19. The palm-oil division reported stronger profit (>100% yoy) attributable to higher FFB and CPO selling prices and reduction in unit production cost as a result of higher production. Meanwhile, losses from the timber division widened by more than 100% yoy due to weaker timber products selling prices and an impairment on PPE. After excluding one-off items, Jaya Tiasa posted a core net profit of RM28.2m in FY20 as compared to a core net loss of RM263.7m in FY19. This was above our expectations, mainly due to better-than-expected results from both plantation (lowerthan-expected production costs) and timber divisions (lower-than-expected losses from timber business) and a lower tax rate.

Back to Black in 4QFY20

Jaya Tiasa’s revenue in 4QFY20 declined by 3.7% qoq to RM139.3m, attributable to lower revenue contribution from its timber division due to lower sales volume of logs and plywood. Jaya Tiasa reported a wider LBT of RM109.9m in 4QFY20 vs. a LBT of RM45.3m in 3QFY20, due to a one-off impairment on PPE amounting to RM98.9m. EBITDA margin in 4QFY20 increased by 25.9ppt qoq to 34.7% due mainly to better margin at the palm-oil division. Excluding the one-off items, Jaya Tiasa reported a core net profit of RM63.9m vs. a core net loss of RM44.6m in 3QFY20.

Maintain BUY Rating on Jaya Tiasa

Given the better-than-expected FY20 results, we raise our FY21/22E core EPS by 27%/1.7%, mainly to take into account higher contribution from the plantation division. Our CPO ASP assumption for FY21-22E stands at RM2,350-2,450/MT. We also introduce our FY23 forecasts. We raise our SOTP-derived TP to RM1.10 (based on 20x 2021E PER for plantation and 1x PBR for forest plantation) and maintain our BUY rating.

Key Risks

Key downside risks for our BUY rating on Jaya Tiasa include: 1) much weaker economic growth leading to a higher consumption of vegetable oils; 2) a sustained decline in the CPO price; 3) lower-than-expected FFB and CPO production; 4) lowerthan-expected log production and selling prices; and 5) unfavourable changes in government policies.

Source: Affin Hwang Research - 27 Aug 2020