This article first appeared in The Edge Financial Daily on September 20, 2018
Johore Tin Bhd
(Sept 19, 92.5 sen)
Maintain “neutral” with a target price (TP) of RM1: Johore Tin Bhd announced an additional investment of RM43.5 million into its wholly-owned subsidiary, Able Dairies Sdn Bhd. We understand that the additional investment is mostly to be used for the working capital in its 40% joint venture (JV) in Mexico. As we expect no immediate earnings changes from this development, we retain our forecasts for now. We also maintain our “neutral” call on Johore Tin with a TP of RM1.
Johore Tin had subscribed for an additional 43.5 million shares at an issue price of RM1 per share in the capital of Able Dairies, amounting to RM43.5 million. The subscription will be financed through a cash payment of RM16.6 million and a contra amount owing by Able Dairies of RM26.9 million. We understand that the proceeds are mostly to be used for the working capital in its 40% stake in the JV of Able Dairies Mexico.
To recap, Johore Tin bought the 40% stake in the JV in Able Dairies Mexico in April 2017. This JV will help Johore Tin penetrate further into the American continent. It targets to commission its Mexican plant by early 2019, with a similar annual capacity as in Malaysia (around 80,000 tonnes). For the initial phase, production will be taken up by its existing customers from Mexico, Central America and the US. As at financial year 2017, Johore Tin had around 9% of its food and beverage customers from the Central American region. With a similar annual capacity as in Malaysia, we expect to see some financial contributions to the group from this JV from 2019 onwards. — PublicInvest Research, Sept 19