Jaya  Tiasa’s  FY14  results  were  hit  by  lower-than-expected  log  and plywood  production  and  losses  incurred  at  its  plywood  division. Earnings  at  its  palm  oil  division  were  also  weaker  due  to  lower  CPO prices  achieved  vs  our  forecast.  We  are  reviewing  our  CPO  price assumptions and,  therefore,  recommendation post  results season.  For now, we maintain our BUY rating on the stock. 

Below  estimates.  Jaya  Tiasa’s  FY14  core  net  profit  was  below expectations, at  84% of our and 70% of consensus  FY14 forecasts. The main variances were: i) poorer-than-expected log production in  FY14 (-9.6%  vs  our  FY14  projection  of  -8.8%),  which  led  to  lower  plywood production and losses at the plywood division in 4Q, ii) lower CPO prices achieved  at  an  estimated  MYR2,280/tonne  (vs  our  MYR2,550/tonne projection),  and  iii)  a  higher-than-expected  tax  rate  of  31.5%  (vs  our projected 25%). Jaya Tiasa declared a first and final net DPS of 1.5 sen, translating into a net payout ratio of 25%.

Core net profit up almost 100%. Jaya Tiasa’s FY14 core net profit rose 98.4% y-o-y even though revenue slipped 4.3% y-o-y. The fall in revenue was  caused  by  a  9.6%  decrease  in  log  production  volume  and  lower CPO  selling  prices  (est.  -12.6%).  However,  this  was  offset  by  higher selling prices of logs (+18%) and plywood (+8%), as well as higher FFB production volume (+20.6% y-o-y), which helped push margins up. 

Revising  earnings  estimate.  After  updating  FY14  results,  we  cut  our FY15F  earnings  forecast by  21% and  introduce our FY16 forecast. Wereduce  our log  and plywood  volume projections  by 8% for FY15, while raising our production cost estimates for both divisions by 5% for FY15.

Maintain BUY.  Post earnings revision, we reduce our SOP-based FV to MYR2.41  (from  MYR2.95).  We  maintain  our  target  P/E  of  16x  for  its plantation division and 12x for its timber division.  While we continue to expect Jaya Tiasa’s plantation division to be its main growth driver in the medium term, lower CPO prices  may  have a detrimental effect. We  arereviewing  our  CPO  price  assumptions,  and  therefore,  recommendation post-results  season.  For  now,  we  maintain  our  MYR2,800/tonne projection  for  FY15  and  FY16.  We  highlight  Jaya  Tiasa’s  sensitivity  to CPO  prices,  where  every  MYR100/tonne  change  could  affect  its earnings by 6-8%.

Source: RHB