Jaya Tiasa’s 1QFY16 earnings were in line, at 25-30% of full-year estimates. This quarter’s earnings were helped by the 23% YoY appreciation of the USD, which boosted its timber division margins. No change to our MYR1.40 SOP-based TP, implying a 9% upside. We maintain our NEUTRAL call as we believe its earnings would still be held back somewhat by the young age of its palm oil trees.

In line. Jaya Tiasa’s 1QFY16 (Jun) core net profit was in line with our and consensus estimates, at 25-30% of FY16 forecasts.

Core net profit down 9% YoY. 1QFY16 core net profit slipped 9% YoY despite a smaller 5% drop in revenue. The drop in profit was mainly attributable to weaker margins recorded at the plantation division, due to lower CPO prices (-8% YoY), although this was offset slightly by higher FFB production (+9% YoY). The timber division saw better profits (+24% YoY) on the back of the USD appreciation (+23% YoY), offset by lower log harvests during the period (-22% YoY). We estimate that every MYR0.10/USD change in the exchange rate could impact earnings by 10-12% pa, while every MYR100/tonne change in CPO prices could affect its earnings by 6-8% pa.

No change to our earnings forecasts. We maintain our earnings forecasts.

Maintain NEUTRAL. We maintain our SOP-based TP of MYR1.40, based on a target P/E of 16x 2016 for the plantation division, a DCF valuation for the log division (WACC of 7.7%), and a replacement value calculation for its plywood division. We maintain our NEUTRAL recommendation on the stock. Despite the positive impact of higher CPO prices, we believe its earnings would be held back by the still young age of its estates, which continue to incur hig production costs. We expect a more significant turnaround for the plantation division in FY17-18.

x

'