Jaya Tiasa - Higher costs, interest expense impact results HOLD

• We maintain HOLD on Jaya Tiasa Holdings Bhd, but with a higher fair value of RM8.82/share (vs. RM8.24/share previously), as we roll forward our valuation base to FY13F on a PE of 13x against an EPS of 67.8 sen.

• The company’s results for the three months and 12 months to 30 April 2012 disappointed on the back of higher-thanexpected net operating costs and interest expense.

• It posted a net profit of RM173mil for the 12-month period – accounting for only 77% of our previous forecast – with only two months remaining for its 14-month transitory fiscal period to 30 June 2012.

• Excluding an exceptional gain of RM27.6mil on the disposal of a subsidiary, its core net profit YTD stands at only RM145mil – representing only 74% of our previous core earnings forecast of RM197mil.

• As such, we have revised downwards the core earnings estimate for the 14-month period by 18% to RM162mil, in view of the higher costs and interest expense. We have also cut our earnings projections by 23% each for FY13F and FY14F on lower FFB production and timber earnings assumptions. 

• The prospects for timber for the rest of the year appear bleak, as the economic slowdown in three major markets – Japan, China and India – dampen demand for wood products. Notably, while log prices are still hovering around US$200/cu m, the weak Indian rupee continues to be a major concern. 

• We expect the timber division to register anaemic growth with PAT at RM42mil and RM46mil for FY13F and FY14F, respectively – against FY12F’s annualised PAT of RM59mil. 

• Regardless, we still expect the oil palm division to post strong growth over the next two-three years – at 35% for FY13F over the annualised earnings for FY12F and another 23% for FY14F.

• Another positive for the stock is the proposed 2-for-1 bonus issue (est. total of 645mil bonus shares) and a 15% placement of new shares (est. 42mil shares that may raise RM300mil, prior to bonus issue – which will partly lower borrowings and keep gearing in check).

• Jaya Tiasa’s proposals are aggressive measures to spur trading liquidity of its shares and would go a long way towards enhancing the attractiveness of the stock.

• Additionally, and as we had noted earlier, given the constrained cashflows from the volatile and uncertain timber market, the placement would raise much-needed funds for  a more aggressive expansion of its plantation division.

Source: AmeSecurities