We  downgrade  JOHO  to  NEUTRAL,  with  a  lower  MYR1.60  FV  (from MYR2.19), pegged to 6x 2014 EPS (represents its mean six-year P/E), as we cut our FY14 estimates  to reflect  potentially weaker revenue growth in its F&B segment. This is our second earnings and FV downgrades for the  year,  both  due  to  its  F&B  operations.  Until  its  earnings  trend stabilises, we feel the stock is fairly valued at current levels.

• Results  in  line.  JOHO  reported  a  flat  9M13  net  profit  of  MYR16.8m (+0.7% y-o-y), making up just 71% of our 2013 forecast. This was mainly due to  weak sales  growth  of 2.9% y-o-y  and higher taxes.  That said, we expect better results ahead as  JOHO  typically enjoys  stronger sales in 4Q due to buoyant export demand ahead of year-end festivities. A 3 sen interim DPS was announced (3Q12: nil).
• Weaker F&B segment,  higher taxes hurt earnings.  9M13  F&B sales were down  6.2% y-o-y,  leading  to a  15.4% drop in segmental net profit for the same period. We understand that sales were negatively affected by the  recent  botulism scare. That said, we are surprised by  the degree of operating leverage the milk business exhibits.  Effective tax rate ticked up 6.9ppts y-o-y to 24.7% as JOHO exhausted the last of its tax credits. These  two  factors  offset  the  15.1%  y-o-y  net  profit  growth  in  the  tin manufacturing business,  which benefited  from better consumer demand during Hari Raya.
• Maintain 2013 forecast  but cut  2014  estimate. While we are confident the  present  earnings  momentum  is  sufficient  to  meet  our  current  year forecasts,  we  are  cutting  2014  estimates  by  16.8%  after  lowering  our earlier assumptions of stronger  F&B export growth to 10%  from 26%,  in line  with historic trends. We feel a more cautious outlook on the stock is warranted  considering  its  erratic  F&B  profits.  We  had  earlier  cut  1Q13 forecasts  due  to  the  weak outlook  for  its  F&B operations,  thus  making this the second earnings downgrade for the year.
• Downgrade to NEUTRAL.  We lower our FV to MYR1.60, pegging the stock to 6x 2014 EPS, which represents its six-year mean P/E. Given the group’s uncertain earnings growth  outlook  and erratic F&B business, we feel the stock holds little excitement.

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Company Profile
Johore Tin is involved in the manufacturing of various tins, cans and other containers as well as printing tin plates via its  subsidiaries.

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Source: RHB