Jaya  Tiasa  (JT)’s 9MFY13 earnings of merely  MYR10.9m  (-85.0%  y-o-y) missed expectations despite higher timber and plantation sales volume as  margins  bore  the  weight  of  weaker  selling  prices  and  higher production cost. We believe its young average oil palm tree age of just 5 years  is  a  disadvantage  amid  low  CPO  prices  as  many  of  JT’s  younger estates are most likely loss-making due to the low yields. SELL, with FV of MYR1.00. The stock is now trading at a 60x FY14 P/E.

- A huge shoftfall. Jaya Tiasa’s (JT) 3QFY13 revenue fell to MYR236.3m (-9.4%  y-o-y,  -17.4%  q-o-q)  on  the  back  of  a  36%  plunge  in  log  sales volume  and  a  31%  slide  in  realized  crude  palm  oil  (CPO)  prices.  This caused  core  earnings  to  dwindle  to  a  mere  MYR0.7m  (-95.3%  y-o-y), accounting  for  just  1.3%  of  our  full-year  estimates.  Meanwhile,  the 9MFY13 sales of MYR796.9m (+5.0% y-o-y)  were bolstered by stronger timber  volume  but  a  combination  of  weaker  plywood  selling  prices  and higher  plywood  production  cost  eroded  the timber division’s profitability. Elsewhere,  oil  palm  earnings  also  sank  amid  weaker  palm  oil  prices. Hence, the group’s nine-month profit made up only 21.2% and 18.6% of our and consensus expectations.

- Timber slumps. The timber division’s 9MFY13 PBT shrank 51.2% y-o-y despite a 11% and 24% increase in logs and plywood sales volume. This led  to  an  8.8%  y-o-y  increase  in  revenue.  Meanwhile,  the  plywood division’s  selling  prices  fell  10%  while  production  cost  rose  14%, squeezing  PBT  margin  by  5.1ppt  to  just  4.1%.  While  JT  expects  the outlook  for  timber  to  improve  as  log  supply  tightens  and  demand  from major  timber  consuming  nations  are  likely  to  go  up,  other  Malaysian 
timber  players  have  indicated  that  the  selling  prices  logged  into  their order book for the next few months remain tepid, especially in view of the sharp decline in the Japanese yen.   

- Maintain SELL. We are slashing our FY13 and FY14 earnings forecasts by  67.9% and 69.3%  respectively  after:  i)  reducing  our  CY13  and  CY14 CPO  price  assumption  to  MYR2,400  and  MYR2,600  per  tonne respectively,  and  ii)  raising  production  costs  for  the  plantation  and plywood divisions. Our FV is hence reduced to MYR1.00, based on 16.0x CY14 plantation earnings and 12.0x timber profits.

Source: RHB