Johore Tin Berhad - Land Acquisition

Date: 17/09/2020

Source  :  PUBLIC BANK
Stock  :  JOHOTIN       Price Target  :  1.82      |      Price Call  :  BUY
        Last Price  :  1.95      |      Upside/Downside  :  -0.13 (6.67%)

Johore Tin (JTB) announced that its wholly-owned subsidiary, Able Dairies Sdn Bhd (ADSB) has entered into a sale and purchase agreement with Golden Valley Industries Sdn Bhd (GVISB) to acquire a piece of vacant freehold land for a total purchase consideration of RM44.2m. The total land area measuring approximately 29 acres (1,264,590.36 sq ft) is located in Mukim Klang, Selangor. We are positive on the acquisition as it gives the Group opportunities for future expansion of its F&B capacity which are already almost fully occupied, domestically. We maintain our forecast at this juncture. Our Outperform call on JTB is retained, with unchanged SOP based target price of RM1.82.

  • Rationale. The objective of the land purchase is part of JTB’s expansion and development plan to expand and consolidate its F&B factories, facilities and production line for operational efficiency and efficacy, with intentions to build factories, warehouses and offices. The proposed acquisition is anticipated to complete by 4QFY21.
  • Financial Impact. The price tag of RM44.2m which was derived based on willing-buyer willing-seller basis will be funded entirely from internally generated funds and/or bank borrowings to be decided on at a later stage. We believe the price of RM35 psf is fair considering that the current market valuation of RM48m (~RM38psf) as appraised by independent valuer, KGV International Property Consultants (M) Sdn Bhd. The proposed acquisition will not have a material impact on JTB’s net cash position of RM14m as at 30 June 2020.
  • Comment. We are positive on the medium-term benefits from this land acquisition as this allows the Group to add new capacity to its F&B business, with space at its current facilities almost fully occupied. The F&B segment contributed about 77% of revenue and 85% of Group profit before tax as at 30 June 2020. Estimated annual capacity is ~144,000 MT.

Source: PublicInvest Research - 17 Sept 2020

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