We hosted Webinar meeting with Johore Tin’s (JTB) CEO to get a business update on the company and its outlook. JTB is the only dairy company from Malaysia that is involved in the manufacture and process of milk powders and condensed/evaporated milk. It is a component of FBM Small Cap Index with a market capitalisation of RM584m.

Geographical expansion into Mexico

• The new Mexican plant, which JTB owns 43%, is equipped with dairies & tins production lines and is well-positioned as a strategic geographical presence for US, Mexico and South American markets.

• JTB began the factory construction at the end of FY18 and has started commissioning for packaging lines in November 2020 with the milk production expected to swing in 1H21. The estimated capex allocation for the Lagos de Moreno-located factory is RM50m.

• The new plant is able to produce condensed milk products with production capacity of 120,000 MT/year and expected to achieve 30%-50% utilization rate by the first year of its operation.

• Subsequently, the plant is expected to achieve 60-70%/80-90% in 2nd and 3rd year of its operation, supported by fresh orders of nearby countries.
   
• Moving onward, the total combined dairies annual production capacity is expected reach 280,000 MT/year, while tins production capacity is 48,000 MT/year.
   
• Management hinted that the Mexican venture would not be the last joint venture with an overseas company to boost its export footprints.

Lagos De Moreno, WHY NOT?

• JTB dairies products constitute 80% of F&B exports. By having a factory in Mexico, JTB is able to deliver to key customers i.e. Walmart within shorter period.

• With its major partner “Calkins, Burke and Zannie de México”, Able Farm products are ready to roll out products, leveraging on its partner’s extensive distribution network with a ready market to be served.

• The company is able reduce its tax rate due to the zero tax rate/FTA agreement applied on condensed/evaporated milk exports from Lagos de Moreno, Mexico to nearby countries (US & South America).

• JTB intends to provide better long-term and stronger relationship with its partner; Calkins, Burke and Zannie de México and the establishment of this plant would provide reliability and sustainable dairy products supply to key customers, in our view.

• Approximately, 70% of dairies market in Mexico are controlled by Nestle (premium products). Able Dairies is expected to gain ground in a huge and untapped low-to-medium segment, according to the management.

Source: BIMB Securities Research - 21 Jan 2021