Although Jaya Tiasa’s 9MFY15 results met our forecasts, we trim our projections slightly to account for weaker log and FFB volumes going forward. Our SOP-based TP is reduced to MYR1.40, implying an 8% downside. No change to our NEUTRAL recommendation as we continue to expect the impact of the company ’s strong FFB production growth to be offset by weak CPO prices and the sombre plywood outlook.

• In line. Jaya Tiasa’s 9MFY15 (Jun) core net profit was in line with ourforecast but below consensus expectations, at 70% and 56% of the respective FY15 forecasts. The timber division did well this quarter, with the plywood operations turning around to record a profit during the quarter, while the plantation division sank deeper into the red due to weak FFB production during the quarter (-25.5% YoY in 3Q). This also caused unit costs to rise, resulting in pretax losses for the division.
• Core net profit down 46.3% YoY. Jaya Tiasa’s 9MFY15 core net profit fell 46.3% YoY despite a 4% rise in revenue. The drop in profit was mainly attributable to weakness in the plantation division, with lower FFB sales volume (-20%) and lower FFB selling prices (-7%). This was offset by better profits achieved at the timber division on the back of an 8% increase in log selling prices, a 12% increase in log sales volume and a 33% increase in veneer sales volume. We highlight that although log sales volume rose during 9MFY15 from inventory sales, log production fell 8% YoY in 9MFY15. This was due to some issues facing Jaya Tiasafrom Nov 2014 to Mar 2015, when productivity of both logs and FFB declined due to the resignation of one of its subcontractors who managed 90% of its palm oil estates and 60% of its timber concessions. This issue has since been resolved from April, as the company has appointed new subcontractors and/or taken over the operations itself.
• Earnings trimmed. We are cutting our FY15-16 earnings forecasts by 7-8% to take into account a reduction in our volume assumptions for log and FFB production, and higher unit costs for the plantation division.
• Maintain NEUTRAL. Post-earnings revision, our SOP-based TP is trimmed to MYR1.40 (from MYR1.50). Despite Jaya Tiasa’s strong FFB production growth driven by increasing maturity of its estates, this is more than offset by the impact of lower CPO prices and weakness seen in the plywood division. We note that every MYR 100/tonne change in CPO prices could affect its earnings by 6-8% per annum.