Jaya  Tiasa’s  1QFY15  results  were  below  expectations  mainly  due  to lower-than-expected contributions from the plywood division.  Maintain SELL.  We revise our SOP-based  TP  down  to MYR1.70 (from MYR1.81). Despite  Jaya  Tiasa’s  strong  FFB  production  growth  coming  from  the increasing maturity of its estates, this is more than offset by the impact of lower CPO prices. 

Below estimates.  Jaya Tiasa’s 1QFY15  (Jun)  core net profit was below expectations,  at  20-22%  of  our  and  consensus’  FY15  forecasts.  The main  variance  was  weaker  contributions  from  the  plywood  division caused  by  lower-than-expected  plywood  prices  and  higher-thanexpected  plywood  costs,  which  led  to  lower-than-expected  margins  for the plywood division of 2.4% in 1QFY15 (vs our projected 6% for FY15).  Core  net  profit  up  12.9%  YoY.  Jaya  Tiasa’s  1QFY15  core  net  profit rose  12.9%  YoY,  while  revenue  increased  6.7%  YoY.  The  rise  in revenue was attributed to a 7.7% rise from the log division (as log prices rose 6%)  and  a 24% increase from the plantations division coming from higher FFB production (+50.3%). The relatively stronger rise in net profits 
was due to higher PBT margins at the log division of 36% (from 21.8% in 1QFY14) and at the plantation division of 14.7% (from 12.3%). 

Revising  earnings  estimates  down.  All  in,  we  reduce  our  FY15-16 earnings  forecasts  by  10-11%,  after  taking  into  account  a  reduction  in our price assumptions and  an increase in  our production cost estimates for  the  plywood  division,  to  reflect  lower  margins.  We  now  assume flattish plywood prices (from +2-3% per annum previously). We introduce our FY17 earnings forecast. 

Maintain SELL.  Post earnings revision, our SOP-based TP  is revised to MYR1.70  (from  MYR1.81)  by  applying  an  unchanged  16x  CY15  target P/E to its plantation division and 12x CY15 for its timber division. Despite Jaya Tiasa’s strong FFB production growth coming from  the  increasing maturity  of  its  estates,  this  is  more  than  offset  by  the  impact  of  lower CPO prices. We note that every MYR100/tonne change in CPO priceswould affect its earnings by 6-8% per annum. Maintain SELL. 

Source: RHB