This article first appeared in The Edge Financial Daily on November 30, 2018
Johore Tin Bhd
(Nov 29, RM1)
Maintain buy with a higher target price (TP) of RM1.25: After excluding exceptional items, Johore Tin Bhd’s (JTB) cumulative nine months ended Sept 30, 2018 (9MFY18) adjusted net profit of RM24.6 million (-13.8% year-on-year [y-o-y]) came in above our and consensus estimates at 97% and 104% respectively due to lower-than-expected costs of sales.
Revenue declined by 4.2% y-o-y to RM344 million in 9MFY18 on the back of higher sales from its tin manufacturing segment (+11.4% y-o-y) due to increase in sales from biscuit and edible oil industries, as well as printing services.
This was offset by lower revenue from F&B segment (-8.3% y-o-y) due to lower sales from dairy-based products.
Profit before tax (PBT) declined by 1.5% y-o-y to RM30.2 millin due to lower PBT from tin manufacturing segment (-19.5% y-o-y) due to one-off machinery disposable gains in the previous quarter. This was supported by higher PBT from F&B segment (+12.3% y-o-y) due to better product mix with higher product margins.
Quarter-on-quarter (q-o-q), revenue increased by 7.7% to RM124.4 million in 3QFY18 due to positive contributions in the tin manufacturing (+13.5% q-o-q) and F&B (+6.0% q-o-q) segments.
Consequently, PBT more than doubled to RM16.5 million from RM5.8 million on the back of F&B segment increase by more than fourfold due to i) higher product margins from better product mix; ii) weaker ringgit providing higher translations; and iii) lower marketing expenditures. This was partially offset by slight decline in tin manufacturing (-0.5% q-o-q segment.
The group declared a third single-tier interim dividend of 1.5 sen per share in the current quarter.
We increase our earnings forecasts by 7.1% to 8.7% for FY18 to FY20 after lowering our costs of sales assumptions.
We believe that FY18 revenue is expected to be driven by: i) ramping-up of capacity in the milk-repackaging factory from 25% to 35% utilisation rate; ii) increase in demand for milk-based products domestically and globally as well as iii) higher sales from printing services in the manufacturing segment.
Management guided that the price of raw materials, that is tin plates, are expected to be less volatile, hence providing more stability in market.
Sales growth is expected to be driven by increasing demands from the biscuit and edible oil industries, as well as printing services.
The F&B segment performance is expected to be resilient in second half of financial year 2018 (2HFY18) and FY19 with the ringgit expected to be weaker, therefore supporting export sales.
Note that 70% of F&B sales are exported to Asia, Central America, Europe and Africa.
We also like the company for its attractive dividend yield of projected average dividend yield of 6% between FY18 and FY20. — TA Securities, Nov 29