PP 7767/09/2010(025354)

Malaysia Corporate Highlights RHB Research

Institute Sdn Bhd
A member of the
RHB Banking Group
R e su l ts N o t e Company No: 233327 -M

25 March 2010
MARKET DATELINE

Jaya Tiasa Share Price

Fair Value
:
:
RM3.28
RM2.35
Gradual Recovery Expected Recom : Underperform
(Maintained)

Table 1 : Investment Statistics (JTIASA; Code: 4383) Bloomberg: JT MK

Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/CF P/NTA ROE Gearing GDY
Apr (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (x) (%)
2009a 756.5 13.9 4.9 (74.6) 66.8 - (3.1) 0.5 1.3 0.7 0.0
2010f 733.6 27.6 9.8 99.1 33.5 10.0 (3.1) 0.5 2.5 0.8 0.0
2011f 1,007.9 66.5 23.5 140.4 13.9 16.0 (5.2) 0.4 5.8 0.8 0.0
2012f 1,265.8 150.0 53.1 125.7 6.2 20.0 700.7 0.4 12.0 0.8 0.0
Main Board Listing / Trustee Stock / Syariah-Approved Stock By The SC

♦ In line. 9MFY04/10 net profit of RM17.6m (+33.3% yoy) came in within RHBRI Vs. Consensus

our and consensus expectations, coming in at 64% and 61% of forecasts, Above
respectively. We consider this to be in line as we expect 4Q10 to remain In Line
firm qoq due to gradual recovery in the timber division coupled with higher Below
CPO prices (+4-5% qoq). As expected, no dividend was declared during the
quarter. Issued Capital (m shares) 282.5
Market Cap(RMm) 926.7
♦ Yoy, net profit increased by 33.3% despite a 9.3% drop in revenue (mainly Daily Trading Vol (m shs) 0.04
from a 24% revenue decline in plywood division due to lower sales volume 52wk Price Range (RM) 1.68-3.28
and average selling prices) due to 11% rise in logs sales volume with 18% Major Shareholders: (%)
Tiong Toh Sing Holdings 22.2
reduction in production cost of logs; and 19% increase in FFB sales volume.
Genine Sdn Bhd 11.2
♦ Qoq, net profit jumped by 300% due to a 54% and 14% rise in sales Asanas Sdn Bhd 9.4

volume of logs and plywood respectively, coupled with better margins from
FYE Apr FY10 FY11 FY12
plywood division due to a 19% drop in production costs. EPS chg (%) - - -
Var to Cons (%) (2.2) 47.0 165.4
♦ Forward earnings driven by plantation division. Given RHBRI’s CPO
assumptions of RM2,350/t, RM2,550/t and RM2,700/tonne for FY04/10-12, PE Band Chart
we believe that going forward, Jaya Tiasa’s earnings will be more
plantations-driven than timber-driven, with the plantations division
PER = 21x
potentially contributing 65-75% to group earnings in FY10-11 (from c.30% PER = 16x
PER = 11x
in FY09).

♦ Further upside to earnings from plywood division? We understand

from industry sources that plywood prices seem to have stabilised and are
slowly creeping up. Nevertheless, we remain conservative for now and
would only review our selling price assumptions (of +5-7% yoy for FY10- Relative Performance To FBM KLCI
12) for the plywood division once further confirmation of a sustainable
increase in plywood average selling prices is obtained via future orders.

♦ Risks include: 1) timber demand improving significantly, resulting in Jaya Tiasa

higher-than-expected timber prices; 2) a sharper-than-expected recovery in

Japan’s economy; and 3) significant reductions in glue and logistics costs. FBM KLCI

♦ Forecasts. No changes to our earnings forecasts.

♦ Investment case. We maintain our SOP fair value of RM2.35 based on

unchanged 14x FY10 timber division earnings and 12x FY10 plantation
division earnings (see Table 5). Maintain our Underperform Hoe Lee Leng
recommendation on Jaya Tiasa. (603) 92802239

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 25 March 2010

Table 2. Earnings Review (YoY Cumulative)

FYE Apr (RMm) 3Q09 2Q10 3Q10 QoQ YoY 9M09 9M10 % YoY Comments
(%) (%)
Revenue 168.8 180.4 209.7 16.2 24.2 613.7 556.4 (9.3) Lower yoy revenue from
plywood (-24%) from the
> Timber 160.9 81.5 194.3 >100 20.8 567.7 424.2 (25.3)
decline in sales volume and
> Reforestation 1.4 1.2 0.1 (94.5) (95.3) 9.4 2.1 (77.8) average selling prices offset
by 11% rise in log sales
> Oil Palm 6.5 27.7 15.3 (44.9) >100 36.5 60.1 64.3
volume and 18% reduction in
Plantation
cost of logs and 19% increase
in FFB sales volume.

Qoq, increase in revenue due

to rise in sales volume of logs
and plywood of 54% and 14%
respectively and better
margin of plywood sales due
to lower production costs by
19%.

Operating profit 3.7 5.9 21.3 >100 >100 24.2 31.9 32.0 See pretax profit breakdown
below.
Op margin (%) 2.2 3.3 10.1 >100 >100 3.9 5.7 1.8
Int exp (2.1) (1.3) (2.9) >100 39.1 (4.9) (6.8) 40.2 Net debt position of RM787m
in 3Q10 (vs. RM714.8m in
3Q09).

Pre-tax profit 1.6 4.6 18.4 >100 >100 19.3 25.1 30.0
> Timber 6.6 2.0 13.7 >100 >100 16.1 14.8 (8.1) Lower yoy due to lower
economies of scale and high
production cost base for
plywood. Qoq increase due
mainly to higher sales volume
of logs as well as lower
production cost.
> Reforestation (2.6) (1.4) (1.4) 1.1 (45.4) (6.4) (3.7) (43.2) Losses due to higher
operational costs and lower
economies of scale.
> Oil Palm (2.4) 4.0 6.1 51.4 >(100) 9.7 14.0 44.5 Lower margins yoy due to
Plantation lower average CPO prices of
RM2,339 in 9M10 vs.
RM2,586 in 9M09.

Tax (1.3) (1.1) (4.6) >100 >100 (5.7) (7.1) 23.8

Eff tax rate (%) 79.9 24.6 25.0 1.6 (68.7) 29.6 28.2 (4.7) Higher than statutory tax rate
due to inability of certain tax
losses in certain subsidiaries
to be offset against profitable
subsidiaries as well as certain
expenses not allowed for tax
deductions.
Minority interest (0.2) (0.2) (0.1) (60.0) (48.9) (0.4) (0.4) 8.2
Net profit 0.2 3.2 13.7 >100 >100 13.2 17.6 33.3

EPS (sen) 0.1 1.2 5.1 >100 >100 5.0 6.6 33.1
DPS (sen) 0.0 0.0 0.0 - - 0.0 0.0 - No dividend declared during
the quarter.

Source: Company, RHBRI

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Table 3. Earnings Forecasts Table 4. Forecast Assumptions
FYE Apr (RMm) FY09a FY10F FY11F FY12F FYE Apr FY10F FY11F FY12F

Turnover 756.5 733.6 1007.9 1265.8 Plywood sales volume (000 m3) 210 273 294
Turnover gth (%) -5% -3% 37% 26% Log sales volume (000 m3) 390 432 410
CPO production (000 tonnes) 18 41 41
Cost of Sales (665.0) (655.7) (889.0) (1054.8) Plywood price (US$/m3) 399 427 457
Gross Profit 91.5 77.9 119.0 211.1 Log price (US$/m3) 160 175 175
CPO price (RM/t) 2350 2550 2700
EBITDA 103.7 136.6 199.6 337.7
EBITDA margin 14% 19% 20% 27%
(%)

Depreciation (74.8) (90.5) (99.3) (122.9)

Net Interest (6.0) (7.8) (7.8) (7.8)

Pretax Profit 22.9 38.3 92.6 207.0

Tax (8.3) (9.6) (25.0) (55.9)
Minorities (0.7) (1.1) (1.1) (1.1)
Net Profit 13.9 27.6 66.5 150.0
Source: Company data, RHBRI estimates

Table 5. Sum-Of-Parts Calculation

CY10 profit PE Total

Timber division 8.6 14 120.5
Plantation 44.9 12 539.0
RNAV 659.5
Outstanding shares 282.5

Fair value 2.33

Source: RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank
(previously known as RHB Sakura Merchant Bankers). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions
and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be
contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

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Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

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