Journey to Wealth

Johore Tin - The Sweet Smell of Strong Profits

kiasutrader
Publish date: Mon, 03 Dec 2012, 09:29 AM

Johortin's 9MFY12 net profit easily  beat  our estimates,  accounting  for  107.1%  of our  full-year  numbers.  As  we  expect  demand  for  its  dairy  products  to  remain resilient, we are raising our FY12 and FY13 earnings forecasts by 26.3% and 7.2% respectively. As the share price has retraced from the high in September, it is now trading at a mere 5.3x FY13 EPS. We advise investors to accumulate on weakness. Our  earnings  revision  pushes  up  our  FV  to  RM2.50,  premised  on  sum-of-parts valuation, based on the group's enlarged share capital. Maintain BUY.

Ahead  of  our  expectations.  Johortin's 9MFY12 net profit exceeded our expectations, accounting  for  107.1%  of  our  full-year  estimates.  The  stronger-than-expected  numbers were  attributable  to  better  margins  from  some  products  at  its  tin  can  manufacturing division  as  raw  material  prices  softened,  and  sales  in  its  dairy  product  manufacturing division stayed resilient. However, we do not think that the net margins seen during 3Q would be sustainable since the company will eventually be passing on the cost savings to its customers. As such, we expect net margins to normalize in the upcoming quarter.

Condensed  milk  the  growth  booster.  We  are  raising  our  FY12  and  FY13  earnings forecasts  by  26.3%  and  7.2%  respectively  to  incorporate  the  stronger-than-expected earnings in 3Q12. We are of the view that the demand for Johortin's dairy products will remain firm next year. That said, the rising price of milk powder and fluctuating price of sugar  may  affect  profits.  Hence,  our  net  margin  forecast  next  year  remains  at  a conservative 7.0%.

Rights  shares  oversubscribed  by  15.7%.  The  company's  recent  rights  shares exercise  was  oversubscribed  by  15.7%.  The  exercise  involved  a  rights  issue  with  free warrants on the basis of one rights share and one free warrant for every three existing ordinary  shares  of  Johortin  held.  The  proceeds  raised  will  be  utilized  to  expand  the warehouse,  factory  and  production  capacity  for  the  company's sweetened  condensed milk  business.  We  are  projecting  a  2011-13  CAGR  revenue  and  net  profit  growth  of 64.4% and 54.4% respectively in view of the new production capacity.

Lifting dividend forecast. In line with our earnings revision, we are revising higher our dividend  forecast  by  26.0%,  based  on  the  same  dividend  payout  ratio.  The  stock  is trading  at  a mere 5.3x  FY13  EPS  and  offers  a dividend  yield  of  4.4%,  which  we  deem undervalued  for  a  consumer  stock.  This  is  more  so  since  the company's earnings are growing  at  a  whopping  2011-13  CAGR  of  54.4%.  In  line  with  our  revised  earnings forecast,  we  are  raising  our  FV  to  RM2.50  (previously  RM2.38),  premised  on  sum-of-partsvaluation, and based on the group's enlarged share capital.
Source: OSK
Related Stocks
Market Buzz
Discussions
Be the first to like this. Showing 0 of 0 comments

Post a Comment