Jaya Tiasa's 1HFY13 earnings of RM17.4m (-81.4%  y-o-y) missed expectations by a mile  as  stronger  timber  products  sales  volume  was  accompanied  with  steep declines  in  realized  prices.  Export  logs  profits  plunged  into  losses  while  earnings contribution  from  its  plantation  estates  shrank  by  62%  y-o-y.  We  are  slashing  our FY13-FY14 forecasts by 15%-26%, reducing our FV to RM1.45. Maintain SELL.

Below  expectations. Jaya Tiasa clocked in 2QFY13 revenue of RM286.2m (+13.5% y-o-y,  +4.3%  q-o-q)  and  earnings  of  RM2.9m (-95.0%  y-o-y,  -80.1%  q-o-q).  Stronger  sales volume for its timber products lifted revenue but sharp declines in selling prices for both its timber and oil palm products led to the dismal quarter. Revenue for the first six months of the  year  was  also  comparatively  stronger  at  RM560.6m  (+12.5%  y-o-y)  but  losses  in  its logs export division dragged down net profit to just RM17.4m (-81.4% y-o-y). Jaya Tiasa's 1HFY13 earnings accounted for 25.0% and 15.7% of our and consensus full-year forecast respectively.

Horrendous pricing across the board. Despite 1HFY13 logs and plywood sales volume growing by 58% and 31% y-o-y respectively, an 11% plywood ASP reduction saw its wood processing profits shrinking by 18.5% y-o-y while a 16% drop in logs ASP plunged its logs profits into the red. Realized FFB and CPO prices for Jaya Tiasa in 1HFY13 also declined by  22%  and  17%  y-o-y,  spearheading  the  62.4%  contraction  in  oil  palm-related  earnings contribution.  While  expectations  are  for  fiscal  spending  in  Japan  to  drive  infrastructure expenditures  in  the  land  of  the  rising  sun,  recent  prices  and  housing  starts  data  are  still unable to provide concrete evidence of a recovery in timber demand.

Maintain  SELL.  We  are  cutting  our  FY13  and  FY14  earnings  forecasts  by  26.1%  and 14.7%  respectively  after  building  in  softer  logs  and  plywood  selling  prices.  Our assumptions  are  for  log  prices  to  dip  by  8.1%  and  plywood  prices  to  decline  by  9.7%  in FY13. We hence reduce our FV to RM1.45 from RM1.65 previously, based on 13.0x FY14 plantation earnings and 9.0x FY14 timber profits.

Source: OSK