KUCHING: Jaya Tiasa Holdings Bhd’s (Jaya Tiasa) fourth quarter of financial year 2016 (4QFY16) results are expected by Affin Hwang Investment Bank Bhd (Affin Hwang) to be weaker year on year (y-o-y) given the slowdown in log production but partially offset by higher fresh fruit bunch (FFB) and crude palm oil (CPO) production.
According to Affin Hwang, Jaya Tiasa’s 4QFY16 result is expected to be released on August 25, 2016.
Affin Hwang noted that based on latest data from Bursa Malaysia, Jaya Tiasa’s log production in 4QFY16 declined by 20.3 per cent y-o-y to 151,694 cubic metres, bringing the FY16 total log production to 717,007 cubic metres.
The research firm believed the decline in FY16 log production was partly attributable to the shortage of labour after the termination of Jaya Tiasa’s main contractor for logging activities since November 2014 and the more stringent environmental safeguards.
“Log production was below our forecast of 772,800m3 for FY16,” it said.
As such, the research firm has incorporated the actual FY16 data into its model and lowered its FY17-18E forecasts by four to six per cent to 706,560 to 712,080 cubic metres.
Affin Hwang believed that Indian buyers of logs are still cautious on their purchases.
“The weak Indian Rupee against the US dollar had pushed the Indian buyers to source for lower-cost logs in Papua New Guinea and the Solomon Islands.
“Meanwhile, plywood demand has remained soft, partly attributable to the price competitiveness of Indonesian supplies,” it said.
The research firm maintained its average log and plywood price assumptions for Jaya Tiasa at US$210-215 per cubic metre and US$510-525 per cubic metre, respectively for FY16-18E.
Affin Hwang highlighted that for 4QFY16, Jaya Tiasa’s FFB production increased by 36.2 per cent y-o-y to 263,009 metric tonnes (MT), partly attributable to the rising matured estate areas, bringing the FY16 total FFB production to 931,744MT.
This was higher than the research firm’s FFB production expectations of 903,161MT.
As such, the research firm has incorporated the actual FY16 FFB production data into its model, but maintained FY17-18E at 1,001,816 to 1,122,230MT.
As for Jaya Tiasa’s 4QFY16 CPO production, Affin Hwang noted that it increased y-o-y by 57.6 per cent to 33,995MT, bringing FY16’s total CPO production to 119,162MT (up 46 per cent y-o-y).
This was higher than the research firm’s earlier expectations of 107,476MT.
“As such, we have incorporated the actual FY16 CPO production data into our model, and raised our FY17-18E forecasts by 2-10 per cent to 143,059-167,886MT,” it said.
The research firm believed that CPO production will continue to increase going forward with the fourth palm oil mill at the Hariyama plantation, which it opined should help Jaya Tiasa to cope with the group’s rising matured oil palm estates and trim transportation costs.
Moving forward, Affin Hwang noted that Jaya Tiasa’s increasing FFB and CPO production will likely continue as more of its oil palm estates mature.
The research firm noted that this, coupled with the higher CPO average selling price (ASP) assumptions are likely to help boost future earnings for the plantation side (accounting for 43-48 per cent of revenue in FY17-18E from 38 per cent in FY16E).
The research firm maintained its CPO ASP assumptions of RM2,400 per MT in FY17-18E from RM2,275 per MT in FY16E.
Affin Hwang has revised down its FY16-18E core earnings per share (EPS) forecast by one to eight per cent.